WSJ May 9, 2020

It appears that we are all modern monetary theorists now.

By The Editorial Board | 289 words

If you want another reason beyond Friday’s April jobs report to reopen the economy, look no further than Friday’s Congressional Budget Office report on the federal fisc for April. The combination of collapsing revenues from the economic lockdown and soaring spending to fight the coronavirus produced a deficit of $737 billion for the month, and $1.48 trillion for the first seven months of fiscal 2020.

April is usually a surplus month as tax payments roll in, but the Treasury postponed tax day this year until July 15. We are grateful for such small government favors. Spending more than doubled in April from the year before and revenue fell by 55%.

But don’t expect the deficit picture to improve too much in July since the economic recession is only beginning and the government anti-virus spending programs are far from done. CBO estimates a deficit of $3.7 trillion for the fiscal year through September, but that’s if Congress doesn’t pass another big spending bill.

It’s impolite to say that any of this matters, since we are all apparently supposed to be converts to Modern Monetary Theory. This is the view that governments can spend whatever they like because the Federal Reserve can monetize it without economic harm. We may get to test this proposition.

Our view is that the damage from so much spending will come in two ways. First, in resources misallocated to government rather than into private hands to invest. Second, in the tax increases that the political class will eventually impose, perhaps starting as early as 2021. The costs of the coronavirus shock and the government response will hang over the economy for years. The sooner the economy starts growing again, the lower the costs.

The Wall Street Journal