As COVID shows up in the rearview mirror, expect three big economic events. They are predictable. One is good, two bad. To avoid the bad, America must tell Democrats “stop!” If they do not stop spending, we will see Jimmy Carter’s “stagflation” before we know it.
What is the good news? More people are going back to work; fewer are claiming unemployment. Supply chains are reopening, incomes rising, vaccines and herd immunity pushing elevated real growth. None of that requires more government. Truth is less government, better economy.
Second, we Democrats are pushing new federal spending. To date, we have spent more on COVID in one year – $6 trillion – than on all wars since 9-11, twice 2008’s financial rescue, over 27 percent of US GDP. See, e.g., https://www.foxbusiness.com/economy/us-spending-on-covid-relief-poised-to-hit-6t.
Democrats no longer think in thousands, millions, or billions, just in trillions. Congress is pushing an “infrastructure bill” totaling $2.3 trillion, only one-fifth for surface transportation. The rest is largess, crony-capitalism for Democrat-affiliated causes, states, and contributors.
Historically, infrastructure is the transport of water, power, communications, and humans – that is, transmission lines for power, communications, water, sewerage, and common conveyance, including roads, bridges, trains, ports, canals, and airports.
The word “infrastructure” has never meant a take-over of private industry, $1.7 trillion dollars for halting fossil fuels, stopping “climate change,” retrofitting millions of homes, federal offices to “monitor domestic industrial capacity,” building half a million “new charging stations” to force electric cars, funding racial justice, gender equality, social programs, wealth redistribution, raising taxes, undermining capital investment, hitting consumers with pass-on expenses.
Ironically, if Congress were honest, they could rebuild the entire interstate highway system for half a trillion dollars. The actual cost was $114 billion, near $500 billion in current dollars. See, e.g., https://www.whatitcosts.com/interstate-highway-system-construction-cost-history/.
That is not the Democrats’ aim. Their aim is to centralize control, sideline states’ rights, create new federal dependence, new entitlements, and strong-arm the US economy …because they can. They possess the power to spend taxpayer dollars on their political agenda, with no one to stop them.
They twist “infrastructure” to include unnecessary federal programs, adding taxes to force the poor Senate parliamentarian to call this bloated bill “reconciliation” – which it is not – letting them jam Republicans, with a 50-50 vote, plus Vice President Harris’ added one vote.
All this should rile average Americans. It amounts to an unjust, unethical power grab. In sum, they call things “infrastructure” that are not – to fool you. They call a bill “reconciliation” that is not – to fool you. They would call court-packing reconciliation if they could.
Second bad thing: While Democrats spend others’ money freely, inflation threatens to disrupt, distort, and slow the US economy. Errors in judgment tied to program creation are, if not reversible, at least subject to modification, rescission, and reconsideration if Republicans regain Congress in 2022, White House in 2024. That would trigger lower taxes, fiscal restraint, less spending, and deregulation – restoring sustainable job-creation and growth. Think 2019.
The immediate issue is the reverse: Mass spending of money we do not have. Our national debt is $27 trillion, a third held by foreigners. Even before $6 trillion in COVID spending $2.3 trillion on New Green Infrastructure, the national debt will exceed GDP by 2028. That ratio of national debt to growth simply not sustainable. Something must give.
Hard reality: Our economy is booming on “cheap money,” plus hope for post-COVID activity. Republicans controlling House or Senate after 2022 might stop the bleeding – runaway spending – through divided government. But that does not solve inflation – which is set to rise sharply.
Raising taxes – as Democrats plan – to pay for unnecessary federal programs slows the economy. Our recovery is already fragile coming out of COVID, competing with China, facing new regulations. But higher taxes with mass federal spending is a formula for economic malaise.
New spending cheapens the dollar. Dollars sucked from a productive private sector into a non-productive federal sector – bills printed with no new wealth – cheapen our currency. The effect is devaluation. That is where we are headed.
Some will say dollar devaluation – even from mass overspending – means our products get cheaper abroad. True, but it also means inputs from abroad cost more, and so do goods at home.
Instead of a virtuous cycle of private sector wealth creation, raising dollar value – which is what Reagan and Trump did – we get the reverse.
We are set to see the dollar fall, prices up to pay for costly inputs, unions demanding higher wages to compensate for higher prices, those on fixed incomes with less spending power. The bad cycle includes other things. As inflation rises, driven by cheap money, too much federal spending, and an overheated economy, the Fed may raise interest rates hoping to cool borrowing. That increases interest paid on all debt – including our national debt. That deepens the hole.
In short, we see a hot economy – driven by recovery from COVID, low interest, loose money. But that cannot last, and it will not last with new federal spending. This fake “New Green Infrastructure” bill is gasoline on inflation, whacks the dollar, increases costs abroad (we buy 5 times more from China than they do us), pushes the Fed to raise rates (compounding debt), slows production, investment, and job growth – even at higher inflation.
If we are not careful, we may make Jimmy Carter’s “Stagflation days” – stagnant growth and high inflation – look mild. The way to prevent this is to let Washington know: “Stop spending!” Notably, even former Democratic Treasury Secretary Lawrence Summers agrees: This is serious. See, e.g., https://www.bloomberg.com/news/articles/2021-03-20/summers-says-u-s-facing-worst-macroeconomic-policy-in-40-years#:~:text=Summers%20warned%20in%20the%20interview%20the%20U.S.%20was,brakes%20hard%20and%20push%20the%20economy%20toward%20recession.