We tend to cringe whenever the U.S. Treasury Department announces that it must borrow more than it had expected, since it only means that the U.S. government is adding to its already massive debt problems. Yet its announcement that it expected to borrow “only” $617 billion during the 4thquarter of 2020, considerably less than the $1.22 trillion they estimated earlier, is anything but good news. Nor is the government’s recent announcement that it would require about $1.1 trillion less than had been expected in new borrowing during the second half of 2020 in any way reassuring.
The earlier estimate had factored in a presumed stimulus deal to follow the multi-trillion dollar one negotiated in late Spring. Naturally, with new stimulus negotiations between Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi stalled, government borrowing will perforce diminish. But we are living in times, many would agree, when budget considerations must take a back seat to economic life support. Republicans have resisted calls for another major economic-aid bill and instead have backed a limited $500 billion measure mostly directed at industry. Wanting desperately to shine on election night, Trump sought to have Mnuchin negotiate a much bigger deal, even if it meant granting aid to middle-class families. But it has proven impossible to get Senate Republicans to do his bidding.
Even the Fed’s Jerome Powell has for months been urging Congress to do more to bolster the economy, which itself is an ironic twist. Historically it has been Congress that plays a more activist role in the economy, with the Fed generally exercising caution. The latter, for its part, has been buying corporate assets in addition to government debt in a thus far largely successful attempt to stabilize the financial markets. Why is it doing this? Do Powell and others on the Open Market Committee continue, despite abundant evidence to the contrary, to believe in trickle-down economics? Unlikely. But few want to tolerate the presumed economic consequences of not continuing to prop up Wall Street.
So, in recent years our central bank has taken on the task not only of financing the government debt, but also of subsidizing the wealthy. Naturally, there is great opposition to such bailouts, and to say that it comes from the left would be highly misleading. Economic luminaries such as Milton Friedman, Thomas Piketty, and the late Nobel laureate James Tobin would be appalled at such wealth support. Piketty has instead advocated a general tax on wealth, and Tobin is famous for favoring a tax on stock transactions. The latter was, in fact, enacted by the State of New York over a century ago, only to be rebated to Wall Street starting in 1981.
I bring this up because it is important to understand that our government’s debt problems have much more to do with corporate wealth and the power that it brings than with reckless policy. I would in fact submit that not agreeing on another sizable multi-trillion dollar aid package soon, one that disproportionately extends assistance to needy people rather than their employers, would be the epitome of recklessness.