Coincidentally, a Democrat is about to occupy the White House.
President-elect Joe Biden has proposed $1.9 trillion worth of new spending on things like direct payments to households, unemployment benefits and a national program for vaccinating people against COVID-19. The Biden plan would support the economy at a time when employers are shedding jobs and an out-of-control pandemic is still killing more than 3,000 Americans daily.
Republicans supported trillions in pandemic relief spending last year, but at a confirmation hearing for Biden’s Treasury Secretary nominee Janet Yellen, Republicans prodded the former chair of the Federal Reserve about how much spending is too much.
“The one thing that concerns me that nobody seems to be talking about anymore is the massive amount of debt that we continue to rack up as a nation and in fact, the president-elect has proposed a couple trillion dollars fiscal plan on top of that which we’ve already done,” said Sen. John Thune (R-S.D.). “Nobody seems to care much about it.”
Yellen said that while the federal budget ought to be “on a path that’s sustainable,” now is not the time to cut back.
“The most important thing in my view that we can do today to put us on a path of fiscal sustainability is to defeat the pandemic, to provide relief to American people,” Yellen said. “To avoid doing what we need to do now to address the pandemic and the economic damage that it is causing would likely leave us in a worse place fiscally with respect to our debt situation.”
The national debt is the sum of the federal government’s past budget deficits, which result from the government spending more money than it raises through taxes in a given year. Economists have said that too much government borrowing could hurt the economy at some point or limit the government’s ability to respond to a crisis, but the ever-widening deficits of the Trump years, which have pushed the national debt to historic levels, do not appear to have caused any problems ― or that much concern among Republicans.
Even before the pandemic, with control of the White House and both chambers of Congress, and no recession or national emergency, Republicans abandoned their prior calls for fiscal discipline and added nearly $4 trillion to the national debt through tax cuts and new spending.
In response to a question from Sen. James Lankford (R-Okla.) about what economic metric might offer a clue that the government is borrowing too much, Yellen pointed to the amount that the government spends on interest on the debt. As a percentage of the U.S. economy, interest costs have risen much more slowly than the debt itself, reflecting the continued willingness of financial institutions to loan money to the government. Net interest outlays actually declined last year, according to the Congressional Budget Office, despite a surge of pandemic borrowing.
Lankford seemed unimpressed.
“I would submit that we have to find an earlier warning sign because once interest rates start kicking up, in some ways it is too late,” Lankford said.
Republicans sometimes dislike federal spending for other reasons that are less theoretical than the debt burden. Business owners complain that federal unemployment benefits put upward pressure on wages, and a booming economy will make it harder for Republicans to retake the White House in 2024.
During Barack Obama’s presidency, Republicans often insisted that any spending on relief for workers be offset by cuts to other parts of the budget, even though the sums at stake typically represented a tiny fraction of what Republicans approved in the Trump years.
On Tuesday, Sen. Rob Portman (R-Ohio) warned low interest rates could rise, that the federal budget deficit is “frightening” and that Yellen should be “a voice of fiscal sanity within the administration.”
Yellen pledged to be that voice, but said fiscal restraint is for later. “Right now, short-term, I feel that we can afford what it takes to get the economy back on its feet, to get us through the pandemic, and to relieve the burdens that it is placing on households and small businesses,” she said, adding that helping a weak economy can result in a lower debt burden long-term.
The debt threat is relatively remote stacked against the threat of plague-related job loss and poverty facing millions of Americans. In her prepared testimony, Yellen anticipated the debt concerns but said they were not a good reason for lawmakers not to mitigate pointless human suffering.
“The smartest thing we can do is act big,” she said. “In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”