Publisher's note: The author of this post is Mitch Kokai for the John Locke Foundation.
argues in a Federalist column
that huge federal deficits "kill blue-collar America." The federal government's response to COVID-19 hasn't helped.
- Coronavirus panic is hitting the global economy, and America is no exception. To patch over the shelter-in-place orders and compensate closed businesses, Congress has passed well more than $2.7 trillion in so-called stimulus, including subsidized loans to businesses, increased unemployment insurance, direct payments to Americans, and funding for hospitals and state and local governments.
- Because of this, the federal deficit is now expected to be $3.7 trillion for fiscal year 2020. That's because we were already running a $1 trillion deficit before we added the $2.7 trillion in spending to fight the effects of the Wuhan virus. ...
- ... [H]igh debt may cause slower growth. Evidence points to a threshold at which indebtedness begins to sap the long-term growth of an economy, about 90 percent of debt to GDP. Growth at this point may fall by 1 percent, which doesn't seem like much, but at a growth rate of 3 percent versus 2 percent, GDP per person will double in only 23 years versus 35 years. That's a huge loss to American incomes.
- For much of this country's history, growth rates have been at 3 percent in real terms, and only since the 2000s has U.S. growth structurally fallen. That 1 percent difference for much of America's history is a reason America has a world-beating economy, and higher growth also tends to be spread more evenly among the population. ...
- ... That brings us to the second problem caused by high debt: inequality. The increased concentration of power in the economy, along with U.S. trade policy, has worked with lower long-term investment in the U.S. economy to result in decades of flat real wages for many blue-collar jobs. That's because blue-collar workers are uniquely exposed to both foreign trade and industries where long-term capital expenditure is required for productivity gains.
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