Covid-19 Adding to Debt

Money 6

Coronavirus Leaves Governmental Budgets Devastated – 

By Stu MacPhail, Editor – July, 2020

COVID-19 and efforts to fight it, have caused large governmental spending increases and major drops in government revenue.  Leaders of local, state and the federal governments are now scrambling to find some semblance of balance between income and outgo.  Families are fighting the same issues.

On May 22, The Telegraph (a southern Illinois newspaper) carried a story entitled All the loopholes states have to ‘balance’ their budgets.  It detailed several of the ways politicians are likely to address pandemic-related shortfalls.  Any serious interest in balancing governmental budgets seems to be slipping away.

One quote in that article, has Yilin Hou, a professor at Syracuse University, saying “state governments must operate to provide the services demanded by citizens [emphasis added], however harsh the [state’s budget-balancing] rules are.”  What?  Governmental leaders are to believe their highest priority is to honor the loud ‘Gimme, gimme, gimme’ shrieks of those demanding ever-increasing governmental services… regardless of the consequences?  Read the story HERE.

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Meanwhile, under the heading Debt Battle Awaits Post-Virus World, a writer in the June 14 edition of the Wall Street Journal suggests that “financial repression” may be the tool of choice to address the current fiscal disparity.  Writer Paul Hannon says, “In the US and elsewhere, government debt is set to soar this year, reflecting lower tax revenue and the cost of financial aid to businesses and households during lockdowns. The International Monetary Fund forecasts that US government debt will reach 131% of annual economic output this year, up from 109% in 2019.”

From Hannon’s article: “Some people thinking about how to pay down the debt are looking at an approach used after World War II: financial repression, or policies that ensure that interest rates remain low. They include central-bank purchases of government bonds and regulations prodding investors to hold such securities … Such measures would help hold down bond yields, lowering interest costs over time … It is increasingly likely that governments will rely on financial repression to erode their debt-to-income ratios.”

“In the heat of the battle,” says Hannon, “nobody is spending too much time worrying about how those pandemic-related debts will be managed.”  Read his piece HERE.

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Fortunately, there are solutions.  On May 26 the American Legislative Exchange Council (ALEC) hosted a 30-minute podcast entitled What is the Swiss Debt Brake?  The podcast features Dr. Barry Poulson, Emeritus Professor of Economics at the University of Colorado, and ALEC staffers Dan Reynolds, Karla Jones and Lee Schalk.

Listeners to the podcast will get a quick overview of the countercyclical fiscal policies/rules that the governments of Switzerland and several other European countries have adopted to restrain imbalances between spending and debt (as opposed to annualized balanced budget constraints).  The podcast also touches briefly on the Taxpayers Bill of Rights (TABOR) that ALEC endorses, and that Colorado and a few other states have adopted.

State legislators are encouraged to take a few minutes to listen to the informative podcast.  Listen to it HERE.

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