Letter to the editor: We’re swimming in money, but could we drown?
The pandemic stimulus provided by the federal government and The Inflation Reduction Act (IRA) have injected close to $6.7 trillion into the U.S. economy over a three-year period. This is on top of the annual budget spending by the federal government. Wow! Adjusting for inflation, this exceeds what this country spent in World War II by $2.7 trillion. What are the consequences of the government’s largess?
Some of the positive things that came out of these cash injections from the federal government are: we avoided the sever economic recession that easily could have developed during the peak of the covid pandemic, the pandemic stimulus money also fed many kids, kept mortgages afloat, preserved many peoples decent credit ratings, accelerated the delivery of vaccines, and saved thousands of small businesses. States used dollars for projects like water conservation, prison infrastructure, expand broad band internet services, and to rescue beleaguered health care providers. Much of the IRA money will go towards green energy subsidies and many infrastructure projects around the U.S.
The size and broad scope of the pandemic funding also opens it up to fraud and questionable allocations. For example, with a population of about 42,000 people the city of Burlington received almost 19 million in relief dollars. That’s about $440 per person, which is four times the allocation ($105 per person) dedicated to most Vermont communities. According to economist Michael Dalton from the federal government’s Bureau of Labor Statistics, every $1.00 in wages that would have been lost during COVID cost us $4.13 in the Paycheck Protection Plan. This was due to fraud, and eligible entities receiving dollars even though they had ongoing revenue to cover payroll.
A major unintended consequence of the pandemic relief and the Inflation Reduction Act, which was forecasted by some early on, is that the $6.7 trillion pumped into the economy and into Americans’ hands, is a major factor towards causing the inflationary pressures we have been experiencing for almost two years. Demand for goods and services has remained steady with many households and businesses having financial cushions. These financial benefits exist even though the Federal Reserve is trying to put the brakes on price pressures through aggressive interest rate hikes over the last 16 months. With some of two programs’ money yet to be spent, the Fed will have a hard time meeting its inflation number target until the tap runs dry.
Higher interest rates are credited for slowing inflation, but the 5% rise in the Fed rate in a little over one year has also had many negative consequences like several banks failing, in part, due to the Fed’s interest rate increases and its effect on banks’ government bond holdings. Treasury Bond market prices are negatively impacted in a rising interest rate environment. Millions of Americans with variable rate loans outstanding are also feeling the pain.
The tremendous increase in federal government spending has also occurred with virtually no change in tax policy to pay for the $6.7 trillion. As a result, our government is borrowing more money to pay the bills. As of February, of this year, our debt was $31.46 trillion. This equals 121% of the nation’s total Gross Domestic Product, (the value of all goods and services produced in America). It is also about six times our 2023 federal budget figure approved by Congress. Close to 7% of the nation’s budget goes to pay the interest on our debt (Pew Research). With the rising interest rate situation, the cost of paying for the country’s debt increases. And let’s not forget the government runs a deficit every year.
So, it seems Congress is happy to spend money, ostensibly, to help us all, but doesn’t have the fiscal prudence to levy fees, or raise taxes to pay the bills. This approach, assuming it is a conscious choice by our elected officials, only works if there is strong economic growth that brings in enough money from existing levies to cover spending, and remember the Federal Reserve wants to slow economic activity. These factors have me scratching my head as to the course of events in the future.
In recent years there seems to be a bi-partisan willingness to expand government’s role in the social fiber of our country, at least in areas they have access. $6.7 trillion is an unprecedented amount of government spending. Many have been helped. However, unlike many other nations that are democracies, free, and have a capitalistic-based economy, Congress seem to lack the fiscal foresight to take actions that will allow us to pay the bills.
Expanding government’s role in all our lives is a choice. When a legislative body makes that choice, they will be judged by the electorate. If the government that makes the choice does not make plans to pay for it, there will be severe consequences.
As an aside, the Vermont Legislature added several new social benefits for Vermonters this last session and they did raise taxes to cover those programs.
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