I urge every conservative against more spending to read this article, including you HotToBe.
First, it's not debt (yet). We are talking about deficit spending. Instead of me being wordy, and insulting, I'm going to copy and paste two very important Q&A points:
Does this mean the U.S. government can spend an unlimited amount of money?
No. There is only so much the government can borrow without raising interest rates and crowding out private investment. That would hurt economic growth. But with interest rates at historic lows (inflation-adjusted, or real, interest rates are actually negative), there is a lot of room to increase borrowing without having to worry too much right now about impairing private investment. This is especially true now when investment demand is likely to be very low in the face of the uncertain economic outlook associated with the pandemic. Even if interest rates rise in response to the huge increase in borrowing by governments around the world (though this is by no means certain), rates are likely to remain quite low by historic standards.
There may, however, be political constraints on how much the government can increase its debt and how much government debt the Fed can buy. The Fed drew criticism for its bond-buying during the Great Recession, though it hasn’t during the coronavirus crisis (yet).
At some point, if central banks create too much money, they will produce an increase in inflation–too many dollars chasing too few goods–or they will have to raise interest rates to slow the economy to restrain inflation. We are not yet at that point, though.
OK, this sounds a little too good to be true: The Fed can simply keep printing money, buying government bonds, and the government can spend as much as it wants and protect the economy from damage done by the virus?
No. For all its power, the Federal Reserve cannot do much to compensate for damage done to the economy’s production and consumption of goods and services during the epidemic–the restaurant meals that aren’t being provided, the trips that aren’t being taken, the cars that aren’t being built. Some hit to output (GDP) is inevitable if we are to safeguard public health.
Beyond taking action to minimize the severity of the epidemic by boosting testing and hospital capacity, the government can provide financial help to people during the crisis so that they can pay basic expenses like food, rent, and utilities. This helps not only ensure that people don’t go hungry or become homeless, it also means that they come out of this crisis with money in their bank accounts and their credit ratings unimpaired. In other words, once it is safe to start shopping and traveling again, consumers will have the means to do so. If they don’t, temporary problems associated with lower demand during the crisis will translate into lower demand well even after the virus ebbs.
Another role for government is to keep businesses on life support for a few months so they don’t go bankrupt and we can more easily re-start the economy when the virus recedes; in other words, to limit the long-run damage to the economy’s productive capacity. A few bankruptcies would be manageable; mass bankruptcies would not be. Sure, new businesses will sprout, but it takes time to hire workers and find suppliers and creditors to get a new business running.
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