Last year, The Concord Coalition began a new project exploring the building blocks of a fiscally responsible economic growth agenda. The project focused on health care reform, workforce growth, productivity investments, worker training and sustainable solvency for Social Security.
In the short time since the original papers in that project were released, the U.S. economy has been battered by the effects of fighting the COVID-19 pandemic. First quarter 2020 GDP declined by nearly five percent. A much larger decline is expected for the second quarter. New unemployment claims have spiked by more than 30 million. The unemployment rate will likely reach 15 to 20 percent in the second quarter and remain above 10 percent into next year.
No plan for jump-starting the economy, let alone for putting it on a solid pro-growth path, can succeed until the pandemic is brought under control.
That will require an all-in effort by the federal government to backstop many segments of the economy and provide necessary testing, treatment and ultimately a vaccine. Already, Congress and the president have approved nearly $3 trillion in stabilization funds and loans, raising the projected 2020 deficit to around $4 trillion. More economic support is expected and will likely be necessary.
In the near-term, concerns about budget deficits and the national debt will understandably take a back seat. They should not, however, be allowed to fade from the nation’s agenda.
As the economy slowly regains its footing, attention must be paid to the pre-existing structural imbalances that led to projections of low economic growth and unsustainable debt. Even before the pandemic hit, the nonpartisan Congressional Budget Office (CBO) estimated that real GDP growth would average below two percent annually over the long-term and that budget deficits would top one trillion dollars (and rising) every year into the future.
This was the pre-pandemic “normal” and it is not an acceptable goal for recovery. Instead, policymakers should set their standards higher, to achieve an economy that grows at a more robust pace and a fiscal policy that can be sustained over the long-term.
The Concord Coalition is determined to assist that effort by building on last year’s fiscally responsible growth project.
It may be many months before policymakers can turn their attention from fighting the pandemic to growing the economy but it is not too soon to begin thinking about what should be done when that time arrives.
The overriding consideration is making sure that appropriately aggressive fiscal actions, made necessary by shutting down the economy to constrain the spread of COVID-19, do not add to the long-term structural imbalance between spending promises and anticipated revenue.
To be sure, there will be a major spike in the nation’s debt. Servicing the added debt will increase budgetary pressure into the future. That is an inevitable result of having to borrow so heavily to confront the current crisis.
What is not inevitable and what would be more problematic for the future is if policymakers decided to use the current crisis to advance permanent spending and tax policies that would make it more difficult to prevent debt growth from being brought down to a sustainable level once the health care crisis has passed.
Near-term policies that expand the debt need not be made permanent to be effective. If we decide as a nation that some of these policies are desirable on a permanent basis, or if new ideas are advanced to increase spending or cut taxes, we should make those decisions as part of a long-term plan with due consideration for the fiscal impact including how they would be financed and not in a crisis atmosphere.
A long-term plan must also include renewed attention to health care cost efficiency, sensible immigration reform to grow the workforce, domestic investments to increase productivity, retraining displaced workers and sustainable solvency for the largest federal program, Social Security.
In short, we can use government debt to help defeat the virus, but we can’t rely on random crisis-driven injections of deficit-financed plans to build a strong economy. The “old normal” was unsustainable. The “new normal” must be built on sturdier footing, one that is both pro-growth and fiscally responsible.