2020-04-30 © 2020 Barnet Wagman

COVID-Relief: We Can Spend Much More

Are we really spending a lot on COVID-19 relief? By conventional standards, it might seem so. According to the Congressional Budget Office, Congress has allocated 2.5 trillion dollars to mitigate the economic effects of the pandemic, roughly 12% of last year's GDP. That is certainly enormous compared to recent relief programs - an order of magnitude greater than the federal response to Hurricane Katrina or the 2008 recession.

But the response to recent disasters is the wrong standard. The current recession will probably be the worst since the 1930s and COVID-19 is certainly the greatest threat to the U.S. population since World War II. The 1940s war effort is a better example of what a really large government response looks like. And it's a good indicator of what's possible.

In the year after Pearl Harbor, federal spending rose by nearly 150%, an increase equal to 18% of pre-war GDP. And that was just the first year. At the peak of wartime spending, the federal budget equaled 44% of GDP. (Coming out of the Great Depression, all that government spending drastically increased national output. In 1944, federal spending was 66% of real pre-war GDP.)

To pay for the war effort, the government borrowed and borrowed a lot. At its peak in 1944, the federal deficit equaled 26% of GDP. All that debt financed spending was undoubtedly needed to win the war. But what did it do to the postwar economy? Did it economically cripple future generations? Exactly the opposite. During the two decades after World War II, the U.S. economy had strong economic growth, possibly the strongest in our history - certainly stronger than we've seen in the last two decades. The World War II level of government borrowing probably could not have been maintained indefinitely. But four years of large scale borrowing had no negative effect.

Notwithstanding current attempts to 'reopen' the economy, stay at home orders are likely to be needed for quite a while - possibly until an effective vaccine is developed and produced in large quantities. This will continue to cause enormous hardship, especially for the millions who have lost their jobs. The personal and psychological hardship may be unavoidable, but the economic hardship isn't. We can make staying at home economically tolerable if we act on a large enough scale. To take the most obvious example, Americans should not have to turn to food banks to survive. This is a problem that more relief spending can directly solve.

To manage a large-scale relief program, some institutional changes would be helpful. Our current patchwork of programs probably needs to be replaced (or at least supplemented) by something more systematic. To manage the enormous production needed to fight World War II, the government had to take substantial control of the economy, via a specially created (and temporary) agency, called the War Production Board. There's no reason, well, no non-political reason, why we couldn't have something like that to administer a large-scale relief program and to ensure that there are no more shortages of essential supplies. (Given the state of the current administration, we probably need an agency with independence comparable to that of the Federal Reserve.)

Fighting COVID-19 may not take as great an effort as defeating fascism, but we should be prepared to make an effort of that scale. If the U.S. could afford it in 1942, after twelve years of the Great Depression, we can certainly afford it now.

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