Fiscal discipline was once a durable American practice. But in the 1940s, it went out the window. The federal government embarked on a sudden, unprecedented binge of borrowing that put the nation in hock up to its ears.
From 1940 to 1945, federal spending rose tenfold. The national debt increased sixfold. The public would have to shoulder the burden of paying down that debt for decades to come.
There was, however, a good excuse for this gross budgetary excess: World War II. For a government, as with a person, there is usually no difference between being frugal and being wise. But when the nation’s survival is at stake, the risks of underspending are far greater than the risks of overspending.
A similar imperative exists today, as the new coronavirus endangers lives and causes economic disruption on a scale not seen since — well, since World War II. Last year, the federal budget deficit soared to nearly $1 trillion, at a time of sustained economic growth and prosperity. It was an atrocious figure, representing the latest fiscal failure by our political leaders.
But the spending package forged by Congress and the president to address the fallout of the pandemic will add up to more than double that amount, pushing overall spending to levels never imagined just weeks ago. The rescue plan is probably only the first of a series of huge spending bills meant to reduce the devastation from a locked-down economy.
For more years than I care to remember, under both Democratic and Republican presidents, I have been a consistent voice — OK, an insufferable scold — on the need for a thrifty and responsible governmental budget policy. I have stressed the importance of living within our means, paying the full cost of what we demand of our government and not piling needless obligations on future generations. There are many good moments for fiscal restraint. This is not one of them.
On the contrary, this is a moment when fiscal restraint would be the very definition of a false economy. In 1942, it would have been lunacy to worry about the cost of building up U.S. military capacity as rapidly as possible. The potential cost of not doing it, after all, would have been cataclysmic.
Today, we face enormous dangers. One is that millions of Americans thrown out of work or otherwise deprived of income will be unable to pay their bills, put food on the table or keep their homes. Refusing to help them through this crisis, which came about for reasons beyond their control, would exact a horrific human toll. It would also create general chaos that would stymie economic recovery for months if not years.
Likewise with businesses. In the absence of prompt federal aid, a wave of bankruptcies could wipe out companies that were healthy and profitable before — and have every prospect of being healthy and profitable afterward. The businesses would be gone, and so would the jobs they provided. People and companies desperately need a bridge across this troubled water.
Yes, the necessary measures will be shockingly expensive. Yes, they will have to be paid for with borrowed funds. Yes, they will enlarge a national debt that was already in the neighborhood of $24 trillion.
But the alternatives would be more costly yet. Replacing the old roof on your house sounds expensive until you compare it to the price of your home being wrecked in a storm because you didn’t replace the roof. New tires cost money, but bald ones can be fatal.
We should think of these federal outlays not as expenditures but investments. They are an essential recourse to protect our long-run interests.
How could we afford all this new debt? Through the robust revenue-generating economic activity that will resume if we successfully navigate the crisis. The larger debt burden will be easier to bear in the long run than a smaller debt would be if we let a brief, severe downturn become a prolonged depression.
Debts have to repaid with dollars, and dollars are something the Federal Reserve can create in any quantity needed. The worst case is that we will have to endure an eventual spell of inflation, which would be far preferable to an immediate and total economic collapse.
In most cases, our politicians deserve condemnation for spending money with wild abandon. In this moment, it’s the best thing they can do.