The Covid Stimulus Isn’t Like Other Stimulus. It’s Much Bigger.
This article is adapted from a talk at the Colorado Springs Mises Meetup on August 21, 2021. See the video.
When it comes to policy debates, it’s now pretty clear that if you’d like to sound very quaint and old-fashioned, be sure to express some concerns over the size of the federal budget and deficit spending.
Such concerns are now taken about as seriously by the average politician in Washington as is the constitutionality of the PATRIOT Act. Virtually no one cares.
Admittedly, the lack of interest in spending was already largely in place before the Covid Crisis began. During the Trump administration, reckless federal spending was the norm, and inflation-adjusted federal spending surged even past 2009’s spending, when the federal government was panicking over the financial crisis and the Great Recession. In other words, the Trump administration gave us crisis-level spending when there wasn’t even a crisis.
Not surprisingly, deficit spending was also remarkably high under Trump—pre-covid—as well. By 2019, Trump signed off on a trillion-dollar deficit, something many thought to be outlandish during a non-recessionary period before that.
But those numbers—including the numbers from the Great Recession bailout years—all look modest compared to the surge in spending that occurred with the covid panic of 2020 and 2021.
Let’s compare spending in the two periods. For example, from 2019 to 2020, federal spending rose 54 percent—from 4.5 trillion to 6.5 trillion, respectively—as Congress and the White House poured money into bailouts and stimulus. On the other hand, in the wake of the financial crisis, from 2008 to 2009, spending “only” increased 14 percent, from $3.6 trillion to $4.2 trillion.
On a per capita basis, the numbers were similar. Per capital federal spending rose 13 percent from 2008 to 2009, rising from $12,000 to $13,700 for each American. But from 2019 to 2020, per capita spending rose 44 percent, from $13,600 to $19,700. (These numbers are all in constant 2020 dollars.)
Spending Levels Similar to World War II
At this point, defenders of runaway spending will often suggest that what really matters is spending compared to GDP.
So let’s look at that measure. In 2020, federal outlays as a percentage of the nation’s GDP surged to 31 percent, the highest number seen since 1945.
Similarly, the federal deficit as a percentage of GDP surged to nearly 15 percent in 2020. Again, this is the highest number seen of this measure since 1945.
(Proportional comparisons of this sort also tend to understate the extent to which debt and spending is growing compared to the overall GDP. This is because government spending is itself a component of GDP, and since GDP is measured in dollars, monetary expansion—even without true growth in economic activity—can fuel GDP expansion as well.)
Also of political significance is the fact that while federal spending was taking off over the past 18 months, growth in state and local spending nearly flatlined, dropping to 0.38 percent growth over the previous year. That’s the