Before his death on February 6, George P. Shultz, a former US Secretary of the Treasury and Secretary of State, co-authored a final commentary warning of the dangers posed by the vast increase in US government spending in recent years, including during the COVID-19 crisis.
STANFORD – Many in Washington now seem to think that the US federal government can spend a limitless amount of money without any harmful economic consequences. They are wrong. Excessive federal spending is creating grave economic and national-security risks. America’s fiscal recklessness must stop.
The COVID-19 crisis has provided the latest impetus for government spending, even to the point of steering the American mindset toward socialism – a doctrine that has always harmed people’s well-being. But some say there is no need to worry about excessive spending. After all, they argue, record-low interest rates apparently show no sign of increasing. The economy was humming along just fine until the pandemic hit, and will no doubt rebound strongly when it ends. And is there even a whiff of inflation in the air?
This thinking is dangerously short-sighted. The fundamental laws of economics have not been repealed. As one of us (Cogan) demonstrated in his book The High Cost of Good Intentions, profligate government spending invariably has damaging consequences.
High and rising US national debt will eventually crowd out private investment, thereby slowing economic growth and job creation. The Federal Reserve’s continued accommodation of deficit spending will inevitably lead to rising inflation. Financial markets will become more prone to turmoil, increasing the chance of another big economic downturn.
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