Money & The EconomyOpinion

Hooray! The Government is Handing out Free Money

If you and your spouse had an income of $150,000 or less last year, you are about to receive another windfall from the Federal government.  It will be $5,600, counting the free money for your two kids, your wife and you.  It doesn’t matter that you didn’t suffer any income loss this past year.  The money is there for you to spend as you please.

And yes, this money is in addition to the $3,400 received last May and the $2,400 received in January.  It appears that the Federal Government has been very good to you.

The government believed that because the economy suffered a very severe, yet relatively brief recession last Spring, nearly every American had suffered.  Therefore, nearly every income-earning American should be compensated for that suffering.

In addition to the free money, for those that were hurt by being laid off from their job, last May the Federal Government added up to $600 per week on top of the state unemployment compensation.  That meant about two-thirds of the unemployed Americans were bringing in more money not working than if they were working.

That seemed ridiculous enough to the government, so they decided to reduce the extra money to $300  per week in the current stimulus package.

You may wonder where the government is getting all this money?

It comes from two places: either they borrow it directly from the public with no intention of ever repaying it, or they simply print the money. While to the average rational citizen there would seem to be a limit to this deficit spending, according to the latest “Modern Monetary Theory” (MMT) it’s okay to spend money that they don’t have, no matter how much.

It’s also okay to print money to purchase the bonds, if it is determined that selling bonds directly to the public strains capital markets and creates capital shortages.  That newly printed money can also be used to buy some of the previously issued bonds back from the public.  This theory apparently believes that a rapid increase in the money supply won’t lead to any long-term problems, like inflation.

For more logical and rational citizens something doesn’t seem quite right.

Those that support MMT look at the Federal Reserve’s Monetary policy following the recession of 2008-2009.  They note there was a similar massive increase in the money, coupled with massive federal government budget deficits and those policies did not lead to inflation.

There is little mentioned about any negative impact those policies actually had on economic growth. Recall from 2009 to 2016, economic growth averaged less than 2%. There is also no mention of the numerous times throughout U.S. history where large increases in the money supply led to a rapid increase in inflation.

More specifically, there is also no mention of how those policies led to the high inflation experienced in the 1970s.

More rational economists, like the general public, believe that the federal government cannot borrow an infinite amount just because the government has the ability to print more money. These economists also recognize that, in almost all instances, a rapid increase in the money supply is truly inflationary.

The high public debt is problematic for the economy.

With the passage of the latest stimulus package, the public debt is approaching $30 trillion, which is nearly 50% more than one year’s GDP.  Rational economists worry about the interest payments on that debt, which is approaching $400 billion annually.  They also worry about a potential capital shortage for business, since the government is taking so much away from capital markets.

The mainstream media (MSM) seems to be hiding the magnitude of the debt. At present, the public debt is about $27 trillion since $3 trillion of the stimulus packages has yet to be spent.  Since GDP will be about $21 trillion this year, the debt is 128% of GDP.  Yet the MSM says it is only 107% of GDP.

That is misleading because the 107% represents the debt owed directly to the public which is about $22 trillion.  The difference is that the MSM does not count the nearly $5 trillion of debt that was created by the Federal Reserve as they simply printed money to pay for the bonds they purchased. Still the Federal government, over time, has spent $30 trillion more than they raised in tax revenue.

While it may seem that the government is giving away free money, this is likely to be the most expensive free money that anyone has ever received.

Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.

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