This post first appeared in The Hill
The Senate Republican Conference is preventing President Trump’s emissary, Treasury Secretary Steven Mnuchin and House Democrats led by Speaker Nancy Pelosi (D-Calif.) from putting together a needed bipartisan stimulus bill. The president zigzags between favoring a big or small package but he hardly matters. What matters is the Republican Senate Conference. It has been a bone in America’s throat for years because keeping its ultra-reactionary 20 member Tea Party/Freedom Caucus members behind him has been Senate Majority Leader Mitch McConnell’s (R-Ky.) preoccupation since former President Obama’s election in 2008. Controlled by that hyper-partisan block of his caucus, McConnell throttled back and disrupted Obama’s efforts to engineer a faster recovery after the Great Recession and the block’s fierce opposition to needed stimulus now, if not broken, will — among other painful economic consequences — make it impossible for millions to pay their rent, creating a descending spiral of homelessness, unpaid mortgages, bank and business failures, and increased unemployment with dangerous political possibilities.
Pelosi and Mnuchin, left on their own, probably could build a big enough bipartisan stimulus package to begin to reemploy the 20 million to 30 million Americans who are now getting some form of unemployment insurance. Trump, vicious and without principles, could support a stimulus package big or small, but he is no right-wing ideologue like the members of the Tea Party/Freedom Caucus. He says at times that he wants a big stimulus package like the Democrats want and that is needed to prevent this COVID-19 recession from getting worse, but McConnell has to support the Freedom Caucus minority that says future debt and a bigger role for government is a more dangerous problem than the disastrous recession bearing down on us right now.
Think about it. There are 20 million to 30 million Americans out of work and in urgent need of government help. We have businesses closing by the hundreds of thousands and Federal Reserve Chairman Jerome Powell and other sane Republicans and Democrats saying, “spend money, don’t worry about deficits and debt.” On the other side we have McConnell and the intransigents preventing a bipartisan solution. For them, the immediate problem of unemployment, closed businesses and idle resources is less important than what they suppose without evidence will be the problems of bigger government and government debt decades down the road.
There is a better way to think about how much the federal government could spend on stimulus to avoid another recession. Americans do not have to rely on suppositions about what might happen decades from now. All the Republican senators have to do is commit to reducing government spending if and when inflation picks up significantly. Instead, their preference is to again put Americans through an economic wringer unnecessarily now when there is no inflation because they suppose prices might rise later. It would make much more sense to focus on one simple measure, inflation itself when it is happening: If there is inflation, spend less. If there is not as is the case today, the government has room to spend more on things like public works until most Americans can find good, well-paying jobs. Powell at the Fed says he will provide all the money needed at super low interest rates just as the Fed did during World War II. This would be far better and safer than betting on conjured up fears of inflation that have no basis in historic American experience.
I wrote a book about the causes of inflation at the American Enterprise Institute in 2005 (“The Competition Solution: The Bipartisan Secret Behind American Prosperity,” The AEI Press, 2005). My conclusion was that U.S. inflation in the 1960s and '70s had little to do with government spending (stimulus) and much to do with de facto price fixing in areas such as trucking, railroads, airlines, telecommunications, key parts of manufacturing, finance, energy and retailing in the immediate post-World War II period. All these economic areas are more open to inflation-limiting competition today than they were in the 25 years after that war. Based on this history, Americans should have no fear that government spending to tide people over during this COVID-19 recession will cause inflation if government policies encourage vigorous domestic competition.
Americans should not fear somewhat bigger government either because government spending on things like public works, health care, less polluting forms of energy, education and Social Security can be shaped to encourage the private sector with abused “policed,” as the Founding Fathers would have wanted, by competition between commercial rivals. If McConnell and the Tea Party-dominated Republican Senate Conference continue to dictate policy, however, this fabulous and resource-rich country will be run over by yet another unnecessary recession. The stranglehold that McConnell forces on the country needs to be broken.