The Pandemic Blog

In yesterday’s post, I pointed out that the fear that many Americans – and in particular some GOP Senators – have about the effects of passing a huge new coronavirus relief bill aren’t justified simply by examining the facts. There’s no reason to fear that we’ll just be giving more control of our debt to the Chinese, since it’s likely that the great majority of the debt created will be held by the Federal Reserve – we’ll literally owe the debt to ourselves. There’s also no reason to fear that the huge bill will cause either interest rates or inflation to jump, since the markets clearly don’t fear either eventuality, and there’s no inherent economic reason why either interest rates or inflation should go up because of the bill. However, I realize that it still doesn’t seem right. After all, if I decided to shore up my family’s finances by taking on a huge debt with no realistic likelihood of paying it back anytime in the foreseeable future, I’d be justly condemned – and of cour...

The US economy clearly needs a lot of help – as today’s second quarter GDP number will undoubtedly show. A new aid package will be approved soon, but it seems a number of GOP Senators are digging in their heels because of a renewed concern about the deficit. This concern seems to come up only during Democratic administrations like Obama’s or when the prospect of a new Democratic administration looms, as it does now. But in any case, I think it’s important to address their argument on its merits, because a lot of people will think it actually makes sense. Of course, if we’re going to hand out $1-3 trillion dollars in new aid (on top of what’s already been approved), we’re not going to increase taxes to pay for it; it will result in an increased deficit. This means we’ll have to borrow the money for this new package. So our national debt will increase by that amount. OK, our debt increases. What’s the problem with that? The interest rate we’ll pay will be very close to zero,...