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Even though Congress has already added $3 trillion of emergency outlays to the budget in the past 12 months, Joe Biden wants Congress to add another $1.9 trillion to the burden of federal spending as part of his so-called American Rescue Plan.
But Mr. Biden is bringing a new twist to the profligacy. Instead of trying to justify the new spending by saying it is needed to compensate households and businesses for government-mandated lockdowns, he is making the Keynesian argument that the new spending is a way of stimulating the economy.
The same approach was used when he was Vice President, of course, but did not yield positive results. President Obama’s American Recovery and Reinvestment Act added lots of debt to the nation’s balance sheet, but the recovery was very weak by historical standards.
Mr. Biden and his team apparently think the anemic results were a consequence of not spending enough money. Hence, the huge $1.9 trillion price tag for his plan.
Will his approach work? If history is any indication, we will get a mix of bad economics with bad fiscal policy.
We can learn about economic recovery today by reviewing what happened during the Great Recession earlier this century and what happened at the end of World War II.
Balance Sheets vs Pandemics
The first thing to understand is that today’s economic problems are quite dissimilar from the Great Recession. That downturn, which began in late 2007, was the result of an unsustainable housing bubble caused by overly accommodative monetary policy from the Federal Reserve and misguided housing policies. This bubble misallocated both labor and financial resources, created an oversupply of housing, left the household sector deeply in debt, and undermined the soundness of many banks and other financial institutions.
The recovery from the Great Recession was slow and protracted because it took years to clean up the mess from the bursting of the housing bubble. Households slowly rebuilt their savings and cleaned up their balance sheets. Unemployed workers that were drawn into housing and housing finance took time to change occupations, find new jobs, and move to new locations. Banks had to work out problem loans and rebuild their capital before they could make new loans to growing businesses.
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Obama’s stimulus did not drive that healing process and spending more money would have done little to accelerate it.
Our current economic problems, by contrast, were not triggered by a credit-driven misallocation of labor and financial resources or over-investment in one sector. Instead, the cause was exogenous—a pandemic. Unlike 2007, the US economy was strong and healthy in February 2020.
Learning from World War II
The closest historical analogy to the current situation is what happened after the defeat of Nazi Germany and Imperial Japan. Keynesians feared that demobilization would throw the US economy into a deep depression as federal spending was reduced. Paul Samuelson even wrote in 1943 that a failure to come up with alternative forms of government spending would lead to “the greatest period of unemployment and industrial dislocation which any economy has ever faced.”
Guided by this sentiment, President Harry Truman proposed “a 21-Point Program for the Reconversion Period” shortly after the war ended. But his plan, which was basically a reprise of Franklin Roosevelt’s New Deal, was largely ignored by Congress.
Did the economy collapse, as the Keynesians feared?
Hardly. There was only a very brief downturn as the economy adjusted to peacetime conditions.
Spared a repeat of FDR’s interventionism, the economy enjoyed strong growth. One of the big tailwinds for growth is that the forced savings accumulated during the war years allowed consumers to go on a peacetime buying binge.
1945 All Over Again
The current economic conditions are somewhat reminiscent of the ones that existed after World War II. The limited ability to spend money during the pandemic has helped boost the personal saving rate from 7.3 percent in the fourth quarter of 2019 to a peak of 26.0 percent in the second quarter of 2020 before trailing off to a still historically high 13.4 percent in the fourth quarter of 2020. In aggregate terms, personal saving soared from $1.2 trillion in 2019 to $2.9 trillion in 2020.
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There are still some troubling numbers in the job market, but remaining job losses are highly concentrated in a few industries that are shut down or operating on a limited basis due to Covid-19 restrictions. These restrictions on sports, live entertainment, cinemas, museums, and restaurants will soon be relaxed as more Americans are vaccinated, and pent-up demand funded with more than $1 trillion in excess savings will resuscitate these sectors, returning the jobs that have been lost.
These are some of the reasons why the Congressional Budget Office (CBO) forecasts that real GDP will reach its pre-pandemic level by the third quarter of this year, the size of the labor force will return to its pre-pandemic level in 2022, and employment will reach its pre-pandemic level by 2024.
All without any additional “stimulus,” just as the economy prospered after World War II despite (or perhaps because of) the failure of Mr. Truman’s 21-point proposal.
President Biden’s team is either unaware of this history, or they simply do not care. Perhaps they simply want to take advantage of the current environment to reward key constituencies. Or they may be trying to resuscitate the tattered reputation of Keynesian economics by spending a bunch of money so they can take credit for an economic recovery that is already destined to happen.
Will America-First News Outlets Make it to 2023?
Things are looking grim for conservative and populist news sites.
There’s something happening behind the scenes at several popular conservative news outlets. 2021 was bad, but 2022 is proving to be disastrous for news sites that aren’t “playing ball” with the corporate media narrative. It’s being said that advertisers are cracking down, forcing some of the biggest ad networks like Google and Yahoo to pull their inventory from conservative outlets. This has had two major effects. First, it has cooled most conservative outlets from discussing “taboo” topics like Pandemic Panic Theater, voter fraud, or The Great Reset. Second, it has isolated those ad networks that aren’t playing ball.
Certain topics are anathema for most ad networks. Speaking out against vaccines or vaccine mandates is a certain path to being demonetized. Highlighting voter fraud in the 2020 and future elections is another instant advertising death penalty. Throw in truthful stories about climate change hysteria, Critical Race Theory, and the border crisis and it’s easy to understand how difficult it is for America-First news outlets to spread the facts, share conservative opinions, and still pay the bills.
Without naming names, I have been told of several news outlets who have been forced to either consolidate with larger organizations or who have backed down on covering certain topics out of fear of being “canceled” by the ad networks. I get it. This is a business for many of us and it’s not very profitable. Those of us who do this for a living are often barely squeaking by, so loss of additional revenue can often mean being forced to make cuts. That means not being able to cover the topics properly. Its a Catch-22: Tell the truth and lose the money necessary to keep telling the truth, or avoid the truth and make enough money to survive. Those who have chosen survival simply aren’t able to spread the truth properly.
We will never avoid the truth. The Lord will provide if it is His will. Our job is simply to share the facts, spread the Gospel, and educate as many Americans as possible while exposing the forces of evil.
To those who have the means, we ask that you please donate. We have options available now, but there is no telling when those options will cancel us. We just launched a new GiveSendGo page. We also have our GivingFuel page. There have been many who have been canceled by PayPal, but for now it’s still an option. Your generosity is what keeps these sites running and allows us to get the truth to the masses. We’ve had great success in growing but we know we can do more with your assistance.
Thank you, and God Bless!
JD Rucker
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