Stimulus Money and the National Debt: Are You Worried?

The young are filled with optimism borne from life’s possibilities and an ignorance of reality. Conversely, age slowly robs you of the future and teaches you harsh life lessons, often resulting in higher levels of cynicism. It’s the cycle of life and why we find ourselves turning into our parents. Sadly, in our youth, we fail to realize the wisdom age afforded our parents until we reach a similar age and are faced with a reversal of roles.

It is through aged eyes that I view the world, including societal evolution and the revolving door of government. The anticipated $1.9 trillion COVID relief bill is now law. If feelings of deja vu materialize, your mind is not tricking you. Rewind 12 years when President Obama and the Democratically controlled Congress passed an $800 billion stimulus package.

The Obama plan juiced GDP in 2010 but growth settled into a narrow annual growth range of around 2%. In fact, GDP growth during the remainder of the Obama Administration differed little from the GDP growth experienced under Trump. The difference is the Trump Administration used tax cuts as a means of stimulus versus outright payments.

A major difference between the two economic downturns is that the Obama Administration was dealing with significant macroeconomic damage which would take years to repair. This past year the pandemic caused a government-induced shutdown. Most of the pain has been isolated to specific market sectors and small businesses. Not to diminish the damage, but once the virus is controlled, the economy will organically return to its previous state.

Yet, the Biden Administration is throwing more than twice the amount of Obama’s stimulus at the “problem” and is doing so in the grand tradition of Washington: indiscriminately. While Democrats and Republicans employ different methods, the result is invariably the same. Age teaches you that. The young — they react with feelings of hope offered by change.

Except hope is not a strategy, and like its predecessor, this latest stimulus bill is poorly constructed and will provide only fleeting benefits. It will, however, further balloon the national debt, which now stands at $28 trillion.

Now there’s one advantage of age. Personally, the national debt is inconsequential to me. But if I were 30 again, I’d be worried. Of course, at 30, one doesn’t tend to worry about issues that may not manifest for years to come. That is one of the paradoxes of life.

Like the Paycheck Protection Program (PPP) before, the Biden bill utilizes a favorite strategy of the political class: the shotgun approach. Why use brain cells attempting to target aid where it’s needed when you can quickly throw large sums of money at a problem and proclaim political victory.

At least the second iteration of PPP proved that like a rat in a maze, politicians have the ability to learn, if not the inclination. The second phase of PPP required that a business had suffered from the pandemic. What a novel idea — provide assistance to those actually hurt.

The first phase of PPP had no means test. Anyone smart enough to file the paperwork could get free money. Meanwhile, the decimated restaurant sector was left twisting in the wind.

Not to worry, though. The proposed stimulus bill targets a massive $25 billion in relief for small and midsize restaurants and chains. That’s a full 1.3% of the total package. Problem solved.

But what about money for military families who have been hit particularly hard or food banks and other charities struggling to help those who need it most? They’re covered as well. The bill provides $510 million for the FEMA Emergency Food and Shelter Program. Let’s see, $510 million is what percentage of $1.9 trillion? That would be two-hundredths of 1%.

Yet $1,400 will be heading every citizen’s way, providing that their income falls below a certain threshold. It doesn’t matter whether you lost your job or not. If you earn less than $75,000 as an individual or $150,000 as a married couple, you will get a check. Think about that: A couple making $150,000 will get a taxpayer-funded gift for what amounts to less than 1% of their gross income. Now that’s life-altering.

And of course, unemployment benefits will be boosted by $300. Focusing on the unemployed at least makes sense. But the danger is the same as for the first round of federal unemployment assistance: that unemployment checks may be larger than what the person earned when gainfully employed. Hardly an incentive to return to work when the economy reopens this summer.

You will be happy to know federal workers will be able to take up to 15 weeks of emergency paid leave if related to COVID. The foolish people who chose to work in the private sector who are dealing with the very same issues, well, you’d better make that $1,400 last.

Lastly, the bill does what many of its ilk do. It includes changes to the tax code that will redistribute wealth. In this case, it takes the form of an increase to the child tax credit. Again, sans credible means-testing. And no worries for those who don’t pay sufficient taxes to take full advantage of the credit. They will simply be given the money. But we’ll call it a tax credit anyway.

But not all the funds allocated by the bill are misguided. A full 0.4% will go toward vaccine distribution, 2.5% is allocated for testing and contract-tracing efforts, and another 2% will help fund child-care needs. All the necessary boxes checked for a mere $94.5 billion.

So here we go again. The political revolving door means it’s the Democrats’ turn to squander the country’s financial resources for short-term political gain. Although the economy will recover nicely on its own, we’ll throw a couple of trillion at it and then take credit for the growth. And while only certain sectors of the economy have suffered greatly, everyone will reap the benefits of free money.

It would have been too daunting to structure a plan laser-focused on small businesses and the hospitality sector. It would have been too difficult to have allowed businesses forced to close to continue to pay their owners and employees. No, let’s allow organizations like Harvard University to apply for PPP and give folks making six figures pin money.

Perhaps one reason why cynicism and age tend to go hand in hand is because politicians and ineptitude do as well. T