Counterfactuals are always fun. Niall Ferguson has even written a book on them, and he’s surely not the only historian to do so.
In this case, let’s imagine for a moment if Donald Trump had won re-election. About the possibility, Trump had been pretty clear about his post-election plans to sign a massive coronavirus-relief spending bill. Alas, and as we know, Joe Biden occupies the White House. And he signed into law $1.9 trillion in alleged economic “relief” related to the virus. “Relief” is put in quotes because it was anything but. Really, how could government allocation of precious resources boost the economy? By definition the spending was an economic retardant simply because Nancy Pelosi and Mitch McConnell aren’t governed by market discipline when they dole out resources.
Where it gets interesting is that there was no talk of inflation when Trump signed into law a $2.9 trillion spending bill in 2020, and certainly none of note from Republicans. Funny there is the latter was seen as necessary given an economy wrecked by lockdowns, but as a rule government spending is an economic somnolent. See above.
More important, the spending bill Trump signed was quite a bit more economically damaging as logic would dictate. Think about it. It subsidized the lockdowns themselves. Put another way, without Trump’s signature there’s no way that California, New York, Illinois, and other states could lock down for more than a week, let alone months.
This is important given the argument thrown around by Republicans against Biden’s $1.9 trillion spending bill; one that Trump had would have readily matched (or exceeded) had he been re-elected. The expressed view among GOP critics was that it was unnecessary, that the economy was rebounding, so why the spending? Well, of course. Why burden the economy with government spending, ever? Except that the latter wasn’t the argument made by those who at least rhetorically associate themselves with “limited government.”
Rather than saying let’s not burden a recovery with $1.9 trillion in handouts that would logically limit capital formation on the way to slower growth, Republicans and right-of-center pundits oddly said the spending wasn’t necessary on account of a rebound already taking place. That was their first error. Spending is a tax, period.
From there, they oddly joined Democrat eminence Lawrence Summers in arguing against the spending because it would cause "inflation." This was thoroughly strange. That’s the case because in Summers’ case he thinks government spending potentially the source of inflation given his view that the latter boosts economic growth. Such is the view of Keynesians. To them growth causes inflation (wrong), and even more ridiculous, government is some kind of “other” that can direct previously un-utilized resources (from Pluto?) into consumptive hands such that economic spirits take off. Yes, Dems believe in Santa.
Back to reality, governments can only spend insofar as those producing have less to spend. It’s kind of basic economics, but true nonetheless. If governments were some kind of “other” as Summers and other Democrats imagine, then it’s possibly true that the Soviet Union still exists and Haitians are eating in abundance. Neither applies. In the case of the U.S, government has lots of demand to redistribute because we’re not socialist and politicians have lots of growth (and demand) to tax away.
The problem is that Republicans (and supply-side Republicans in particular) have seemingly forgotten the truth about where demand emerges from. With prices on the rise for obvious reasons related to the evisceration of supply chains during the lockdowns (see $2.9 trillion in spending – don’t ever let anyone tell you government waste boosts output ever again), Republicans and supply-side Republicans mistook rising prices for inflation. There’s a big difference between the two, but Republicans either misunderstood it, or are so partisan as to ignore it. Which led to their adoption of Keynesian mysticism.
Out of nowhere, a modern ideology rooted in supply as the source of all demand pivoted to government as the producer of multiplication in the economy. While Republicans not Mitt Romney used to kind of understand that government spending was our money (remember how Rush Limbaugh used to say “It’s not your money!”?), prominent Republicans began writing opinion pieces claiming the government spending under Biden was fostering “excess demand.” No, there’s no such thing. Demand is a consequence of supply, period. For government to spend we must have less to spend. Even more comical, one op-ed from a prominent conservative claimed that the $1.9 trillion of spending that Biden signed into law was what tipped us into inflationary territory. That Trump wanted more than Biden post-election was naturally not mentioned.
From there, Republicans and formerly supply-side Republicans tacked to “deficits” as the cause of inflation. Phil Gramm, John Cochrane and others jumped on this, which was truly odd given their quietude during the two Republican presidencies in the 21st century alone (see Bush, George W. and Trump, Donald), but also because the correlation made and makes no sense. Japan has run up monstrous deficits over the last few decades amid a yen largely soaring against the dollar and commodities. Beyond that, if anything a devaluation of the currency would restrain deficits. Really, why would investors buy income streams declining in value? No answers on any of this.
All of which brings us to the basic truth that Republicans and formerly supply-side Republicans have painted themselves into a perilous corner. Figure that spending has always risen under them, which means future waste will foster “excess demand” according to the neo-Keynesians (let’s just put “supply side” into the proverbial dustbin) of the GOP. Deficits? While the total amount of government spending matters exponentially more than deficits (which is better economically: a smaller government funded partially by debt, or a larger government fully funded by taxes?), the deficits Republicans have historically run up will similarly be inflationary. Why shouldn’t they be?
Quoting Somerset Maugham (in The Razor’s Edge) surely quoting someone else, what’s sauce for the goose is sauce for the gander. Republicans and their neo-Keynesian/spending/deficit/inflation hawk pundits have redefined the very inflation that’s not inflation, but that will be hung on them in the future. Deservedly so for being so unserious about something that is serious.