“It arrived while I slept,” a Facebook friend said (I quote from memory), grateful for the $1,200 deposit in his bank account from the fairy “IRS TREAS.” It’s magical. You have done nothing (except being unwillingly subject to the risk of a coronavirus and work ban) and a tax-free gift appears in your bank account! It should happen more often, right?
This will be the first terrible consequence of the “Economic Impact Payments” sent or being sent to more than 80 million Americans. Many people will think that if it can be done once, it can be done regularly, like every month to finance a guaranteed income. Many MMT proponents think that money creation can finance any goodies that they or the majority want.
One absurdity in the abominable gift is that the crisis that motivated it has been partly caused by the donor himself, both by omission and by commission. By omission: the federal government was incapable of preparing, at least minimally, for a pandemic, which, it was known from SARS in 2003 and MERS in 2012, could happen, while such preparation could be viewed as the production of a public good falling within the role of government if it has any useful role. By commission, because the federal government’s regulations prevented private efforts to increase supply, and because (under the Korean-War Defense Production Act) it added price controls and bureaucratic allocation that prevent markets from minimizing the damage. The whole crisis has been a humongous government failure, and governments are using it to claim widespread powers that most people did not suspect existed.
Moreover, if many individuals prohibited from working need the check direly, many if not most Americans could, for now, live without it. Some may even barely notice it.
Another terrible aspect of the abominable $1,200 gift is that it serves not only state propaganda in general but also the personal propaganda of a president who is facing an election in a few months. He sent a letter to all recipients, disguised as a personal letter, stating that “our top priority is your health and safety,” that “America will triumph yet again—and rise to new heights of greatness” (the words “America” and “great” had to be there), and that “we will do it together, as one nation, stronger than ever before.”
Usually, and contrary to this letter, the Trump administration writes “nation” with a capital N–anywhere it can plug the word–and we can only wonder what bureaucratic-political battle must have been waged over this and other parts of the letter. Perhaps there is hope?
Finally, it’s even not a gift. It does not come from the signatory’s personal money, but from future taxes that the recipients or their children will have to pay; or else, from the inflation that will result if the federal largesse (more than $96 billion for the Economic Impact Payments only) is financed by money creation instead of borrowing.
In the Aeneid, his great epic poem, Virgil tells how, in the 13th century BC, the Greek army faked retreating from the siege of Troy and left behind, ostensibly for some deity, the famous Trojan Horse, full of soldiers, hoping that the Trojans would bring it inside their walls. A Trojan priest tried to persuade his fellow citizens not to do it, saying
Timeo Danaos et dona ferentes.
(I fear the Greeks even when they bring gifts.)
READER COMMENTS
Thomas Hutcheson
May 1 2020 at 10:54am
While it would be better if all the pandemic relief were directed through a reasonable unemployment insurance system that expeditiously replaced 90% of lost wages + individual heath insurance premiums, a per capita grant is better than other parts of the package like the airlines bailout, the real estate tax deal and the “paycheck protection program.”
And you miss the big issue, the failure of the Fed to maintain expectations of NGDP on track, or even expectations of inflation.
Pierre Lemieux
May 1 2020 at 11:16am
You may be right, Thomas, that the Fed deserves a mention. But a mention for what? That it did not push up inflation expectations? The Fed has been making mistakes since its foundation, which was itself an error. If we believe Friedman and Schwartz, the Great Depression was one of these mistakes. The stagflation of the 1970s was another. In general, I wouldn’t say that the failure of the state to maintain expectations of Nirvana is a failure of omission; it is only true if one believes that Nirvana is one of the state’s functions.
Phil
May 1 2020 at 6:13pm
While I fully understand any academic being distrustful of Republicans in general (by virtue of the lack of political diversity among academics), and the distrust Trump in particular (which ought to be universal, regardless of political affiliation, because he is after all a buffoon), I do find the outrage over the use of the term “nation” particularly intriguing given that the Democratic Governor of California routinely refers to California as a “nation-state.” If you are going to condemn the use of the term by those you are politically aligned against, at least be intellectually honest and use it against those you presumably support.
Pierre Lemieux
May 1 2020 at 7:01pm
Phil: There are not many political rulers I support. From the top of my head, I can’t find a single one among those who use the term “nation.” So I totally agree with you and have no penance to do. (I am always surprised by FB friends and Twitter followers who seem to believe that the observable universe is made of two sorts of matter, Democratic-matter and the Republican-matter, and that I must also, like everybody else, be made of one of those.) See my Econlib article “The Tyranny of the National Interest.”
Mark Brady
May 2 2020 at 2:27pm
“Finally, it’s even not a gift. It does not come from the signatory’s personal money, but from future taxes that the recipients or their children will have to pay.”
Is this a reference to financing the interest payments that are paid to the bondholders, or to redeeming the debt (but it could be a consol with no fixed date of redemption), or both? And how would you respond if an observer were to point out that the recipients of this “gift” would be prepared to pay the interest on the debt so incurred and/or to redeem the debt when it came due?
Pierre Lemieux
May 3 2020 at 9:13pm
Mark: Isn’t a consol, ceteris paribus, more risky for the borrower and less risky for the lender? You would then expect it will carry a higher (effective) interest rate. In other words, taxpayers start repaying the capital right now because the loan cost them more.
As for your second question, this situation does happen–each time the government guarantees a debt. If the recipient of the guarantee himself were willing to pay special taxes to cover his risk of default, that is, to pay a higher rate of interest, indeed it could be said there is nothing for the taxpayer to reimburse. But it also means that the recipient of the guarantee could have got the same loan on the commercial market. Government loan guarantees (or preferential interest rates) are valuable for the recipients only because the taxpayers pay something.
Comments are closed.