[WaPo] In Democrats’ progressive paradise, borrowing is free, spending pays for itself, and . . .

"In Democrats’ progressive paradise, borrowing is free, spending pays for itself, and interest rates never rise":

https://www.washingtonpost.com/business/2021/03/03/democrats-stimulus-spending-inflation/

long but worth it. Steven Pearlstein's final column. And I'm pretty sure this guy's not a stark raving Republican

In Democrats’ progressive paradise, borrowing is free, spending pays for itself, and interest rates never rise
A warning — and a farewell — from our longtime economic columnist

By Steven Pearlstein
Columnist
March 3, 2021 at 7:00 a.m. EST


Welcome, fellow Americans, to the era of the free lunch.

To hear it from liberal economists, progressive activists and Democratic politicians, there is no longer any limit to how much money government can borrow and spend and print.

In this new economy, we no longer have to worry that stock prices might climb so high, or companies take on so much debt, that a financial crisis might ensue. In this world without trade-offs, we can shut down the fossil fuel industry and transition to a zero-carbon economy without any risk to employment and economic growth. Nor is there any amount of infrastructure investment that could possibly exceed the capacity of the construction industry to absorb it.

Rest assured that the economy won’t miss a beat no matter how far or fast the minimum wage is raised. And whatever benefits are required by the always struggling middle class can be financed by raising taxes on big corporations and the undeserving rich.

So party on, progressive dudes. Worries about debt and inflation are just so 20th-century, the figments of a now-discredited neoliberal imagination. We have entered a magical world where borrowing is costless, spending pays for itself, stocks only rise and the dollar never falls. In this economic paradise, government mandarins can fine-tune the economy to prevent inflation and unemployment, while economic, racial, environmental and social justice can be achieved without any painful trade-offs.

Okay, I exaggerate — but only slightly. I’ll be the first to admit that because of new technology and structural changes to the global economy, aspects of our economic understanding need to be updated. But those overdue correctives have been hijacked by partisans and ideologues who would have us believe that the laws of economics have been repealed.

It is undoubtedly true, for example, that in a globalized economy, the United States is less susceptible to inflation-inducing capacity constraints or a crowding-out of private borrowing by government borrowing. But that doesn’t mean that the government can borrow and spend an extra $10 trillion on covid relief, infrastructure and climate investments without running a serious risk of overheating the economy.

Similarly, although economists now believe that governments can safely run higher annual budget deficits than previously thought, it’s also true that even a modest run-up in interest rates in a country as indebted as ours would saddle taxpayers with economically and politically painful levels of debt service.

Since the financial crisis of 2008, the Federal Reserve has learned that it could avert financial panic and global depression by printing dollars and using them to buy government and corporate bonds. But what we should also have learned is that running the print press at full tilt for years after the initial crisis has passed creates giant credit and investment bubbles that will burst at the first hint that the bond-buying is about to end.

All this borrowing and money-printing also risks triggering a run on the dollar and demands from foreign investors for higher interest payments on the $1 trillion they lend us each year just to maintain our current standard of living. Just because these things haven’t happened yet doesn’t mean that they won’t. And when they do, the unwinding will be swift and painful.

Or consider the current debate about the minimum wage. A thorough review of the literature strongly suggests that a higher minimum wage can lift millions out of poverty while causing fewer job losses than economic theory would suggests. But what you never hear from supporters of a $15-an-hour minimum wage is where the money will come from to give hefty pay raises — as much as 100 percent — to 27 million American workers, 1 in every 6. While a bit may come from higher worker productivity, most of the tab will be paid for by consumers in the form of higher prices, fellow employees in the form of lower raises and business owners in the form of lower profits. This is not just redistribution of income from the top 1 percent — it’s also redistribution from everyone.

There is nothing magic, by the way, about $15 — it’s nothing more than a stretch goal chosen by grass-roots labor organizers.

If our goal is to restore the minimum wage to the purchasing power it had during the golden years of the 1960s and ’70s, then the right number would be something closer to $11 an hour.

Alternatively, we could peg the minimum wage to the level necessary to bring a full-time worker above the poverty line. In that case, the current federal minimum wage of $7.25 would do the trick for a single worker, or $10.25 if you think a single parent with two children is the right reference point.

Or perhaps we should adopt the “living wage” standard calculated by Massachusetts Institute of Technology researchers, based on what it costs to provide the basic necessities enjoyed by most Americans. That would require a minimum wage ranging from $13 an hour for a single person to as high as $35 an hour in some states for a family of three.

My own preference would be to take our cue from the labor market and peg the minimum wage at half the hourly earnings of the median full-time worker, adjusted for regional variations. Nationally, that would average out to about $12.50 an hour, but would range from about $9 in a state such as Alabama to as high as $16 in California. Such a formula could win backing not just from a number of Republicans in Congress, but also from major business organizations. And yet if Democrats were offered the chance to pass such a deal tomorrow, it’s likely the pushback from progressives would be so loud that the White House and congressional leaders would turn it down.

The minimum wage, however, should not be considered in isolation. There is also broad bipartisan support for increasing and expanding the Earned Income Tax Credit — the government’s wage supplement for low-wage workers. And there is similar support for increases in the child tax credit and a refundable child-care credit. When combined with food stamps and a fair minimum wage, these programs could effectively end poverty among working families in America.

My purpose in walking through this analysis is to point out that this is the kind of discussion that the country and the Congress should be having at this moment — and that many of us hoped would happen with the arrival of a moderate, dealmaking president.

But what we have been treated to instead are mindless talking points (“Go Big”) politically inspired lines in the sand ($1.9 trillion in stimulus, a $15-an-hour minimum wage, $1,400 rebates) and transparently partisan proposals to reward the Democratic base, buy off White working-class voters and avenge the partisan outrages of the Trump era. Instead of bringing a polarized country together after a narrow election victory, Democrats seem determined to spike the football in the end zone.

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It is disappointing, of course, that Democrats have embraced some of the same intellectual dishonesty, and the same all-or-nothing strategy, that they rightfully criticized when the Republicans were doing it. But what is equally disappointing is the performance my colleagues in the media, who relentlessly and heroically exposed the lies and exaggeration and false narratives of the Trump era but have suddenly lost their critical eye.

The extensive coverage of the $1.9 trillion relief package, for example, has been full of all the usual talking points and political posturing but contained little about how these vast sums were arrived at or how the money would actually be distributed and spent.

Rare is the story these days that does not highlight how “progressives” feel about an issue, with nary a mention of what moderates or business leaders have to say.

Where is the three-Pinocchio skepticism when the chair of the Federal Reserve assures that there is no connection between skyrocketing values for tech stocks and bitcoin and his pledge to continue pumping an additional $120 billion a month into the financial system?

And when was it decided that every economic issue or business practice is best viewed through the lens of race and gender?

Having written and edited my way through several of these economic and political cycles, I shouldn’t be surprised that the pendulum is now swinging too far in the other direction. But just as there is a danger in each new generation declaring that a new day has dawned and all the rules have changed, there is also a danger that those of the previous generation will fall into the trap of fighting the last war, offering up the same nostrums, and clinging too hard to outdated models of how the world works.

Back when I started at The Washington Post, there was a longtime reporter on the national desk who, whenever an editor would wander over to suggest he write a story about some issue in the news, would invariably reply, “We had it,” or “I already wrote that.”

In recent years, I’ve sometimes heard myself saying the same things to editors or readers who write in with a column suggestion. I find myself gravitating to the same topics, the same sources, even the same metaphors and sentence constructions. I’ve stubbornly declined to participate in social media, which for good or ill (mostly ill, I think) has now become an integral to the way journalists report what is happening, participate in the public participation and let readers know what they’ve written.

These days my journalistic metabolism is better suited to a weekly magazine than the 24-7 news cycle, while my natural instinct to avoid writing about topics everyone else is writing about ignores the demanding realities of digital publishing. And in a polarized political and media environment, I am a reliable champion for neither tribe. It’s time to hang it up.

So this will be the last of my irregular columns for The Post. After 33 years, I’ve managed to outlast four executive editors, five managing editors, six business editors, and been lucky enough to work alongside hundreds of incredibly talented colleagues in a truly remarkable newsroom. I owe much to the countless economists, business and labor leaders, management consultants, politicians, and public servants who have taken the time to tell me what they know and teach me about business and economics.

And it has been particularly satisfying to have been able to mentor so many young journalists who have gone on to become big stars in their own right. Most of all, it has been an honor and privilege to write for knowledgeable, discerning and appreciative readers who’ve never shied away from letting me know when I’ve got it wrong.

To all of you, thanks and farewell.​