Commentary: Federal government spending has gone wild

By Dr. John Stapleford

Using COVID-19 as an excuse, federal government spending has gone wild, and there will be consequences. The consequences are severe enough that Delaware should not count on a second stimulus grant to boost its economy.

Dr. John Stapleford

The federal government is flooding the economy with borrowed and printed money. The acceleration began with the 2008 burst of the housing market bubble and the stimulus to calm the waters of financial markets. The reparations for COVID-19 make the financial stimulus look like small potatoes. And the policy suggestions put forward for President-elect Joe Biden will make the government bubble worse.

The federal debt is currently over $26 trillion, and the national gross domestic product is $19.5 trillion. The debt per taxpayer is $182,000.

The federal debt as a percent of GDP has risen from 62% in the fourth quarter of 2007 to 136% in the second quarter of 2020. The COVID-19 spending alone in the second quarter of 2020 raised that percent from 108% to 136%.

The Federal Reserve debt has gone from $741 billion in the fourth quarter of 2007 to $4,615 billion in the second quarter of 2020, with the COVID-19 stimulus adding over $2 trillion.

The U.S. is beginning to mirror Italy or a developing nation, with an economy propped up by printed money.

What can be done before the bubble bursts? The federal government could raise taxes and cut spending. What politician will vote for that? The government could contract the money supply, causing a spike in interest rates and depressing the housing and bond markets. Not likely. Or the U.S. government can continue to spend beyond its ability to pay and bring about hyperinflation.

The current signals for government-spending constraints are dim. There is pressure on President-elect Biden and Congress for a second COVID-19 stimulus bill to bail out state public employee pension funds. Biden has mentioned forgiving student college loans. Various interest groups expect payback for their support of Biden.

All this assumes that the Social Security and Medicare trust funds will not go negative.

It is most likely that government and taxpayers will be content to simply allow the can to be kicked down the road and continue to pass the burden of reckless spending onto their children and grandchildren. Delaware’s congressional delegation needs to ante up and stop this craziness.

Dr. John Stapleford is the Caesar Rodney Institute policy director for the Center for Economic Policy & Analysis. You can find more information at caesarrodney.org.