I have reached the point where I am afraid that we are permanently losing our way of life. When government obtains new powers in a crisis, it does not relinquish them. When the Fed is going to have power to control more capital than all of the bank loans and corporate bonds combined, that is going to make the American economy like the Chinese economy, where the government also acts as the central source of credit. On the fiscal front, we may never again see Federal government is taking on a share of the economy not seen since World War II, starting from a higher debt level than we ended the war with, and with no thought whatsoever of future fiscal austerity.

I disagree with the elite consensus in two ways. First, I do not think that we should rely so heavily on the stay-at-home strategy and we ought to at least in some region try the masks-and-scarves strategy. Second, I think that the “stimulus” is misguided. At the very least, the government should have a plan to undo the increase in debt and a plan to unwind the huge Fed balance sheet.

If we are going to get off this disastrous course, people who agree with me will have to be heard. My thought is to try to start some sort of discussion about how to do this.

President Trump and his virus task force seem to give daily briefings. I would like to see citizens get together, say on Zoom, to give their own briefings. Call this idea Citizens’ Daily Briefings.

My dream is that eventually every day there would be several thousand different online meetings, each with a few dozen participants, discussing these issues and coming up with ways to pressure the elites to change course. You can think of this as a modern version of Committees of Correspondence.

I would like to hear comments from anyone who would like to see this idea work. I know what I am proposing is difficult to execute and likely to fail. It may not be desirable to try. But I don’t need to hear any of that. Negative, hostile, and snarky comments are not welcome. If you don’t buy into the spirit of the idea, just keep silent.

UPDATE: at 6:30 pm eastern time today, March 31. Meeting id 824-584-0623. Going to try a Zoom meeting. A learning experience.

Amit Seru and Luigi Zingales write,

The need to help individuals and small firms has provided cover to the largest corporate subsidy program in U.S. history. Under intense pressure from lobbyists, the Cares Act allocates $510 billion to support loans for large businesses. A small chunk of this money ($56 billion) will be used directly by the Treasury to grant loans to airlines and other “strategic” firms (read: Boeing). The Treasury will then confer the rest ($454 billion) to the Federal Reserve to absorb losses the Fed might incur in lending to firms in the private sector.

The expectation is that the central bank will leverage this money 10 to 1, enabling it to lend up to $4.54 trillion to companies. That sum is more than all U.S. commercial and industrial loans outstanding at the end of 2019 ($2.35 trillion) plus all the new corporate bonds issued during 2019 ($1.41 trillion). Thus, if this capital is all deployed by the Fed, and at rates that will surely crowd out private capital, all capital allocation in the U.S. in 2020 will be done by the Federal Reserve System, not by the capital market.

Their recommendation is for more transparency and oversight. Really? Our country has switched to an economic system somewhere to the left of Bernie and barely to the right of Lenin, and you would be satisfied with transparency and oversight?

I applaud Seru and Zingales for coming forward to point out the radicalism in the CARES act. But it requires a more radical response.

A commenter asks,

With plan B the taxes happen sooner. With plan K the taxes happen later. We will scramble to produce output to pay those taxes later so the difference between B and K is just the timing of taxes. Apparently you don’t agree so I’m asking why?

Because no one will vote for the necessary tax increases. Look, they could do it now if they wanted to. They are spending 50 percent more in 2020 than they did last year. They could enact tax increases to go into effect in 2021 and later to pay for that spending. But they won’t. That’s even assuming that an increase in tax rates would actually work to increase revenues, which is no sure thing.

After World War II, we restored fiscal health with economic growth and Dwight Eisenhower. Economic growth meant that even though tax rates were not increased to pay off the debt, tax revenues went up.

Because we were willing to cut government spending from its wartime levels, and because Eisenhower had old-fashioned values about fiscal responsibility, for more than a decade we ran what economists call primary surpluses. The primary surplus is the government deficit if you do not include interest payments. If interest payments are $50 and the deficit $80 $20 (good catch by a commenter0, then the primary surplus is $30. If you keep running a primary surplus long enough, the interest payments keep falling until you no longer have a deficit. It’s like if you keep paying off some of the principal on your credit card, eventually you get out of debt.

But in case you haven’t noticed, Dwight Eisenhower is no longer President. We aren’t running primary surpluses, and we are not going to. We had some nice economic growth in the 1990s, and it took a while for Washington politicians to catch on, so the fiscal situation improved for a couple years. We had some slow economic growth from 2011-2019, and even though the Obama and Trump Administrations outspent the resulting increases in tax revenues, the Federal debt increased only gradually.

And now we have that 50 percent increase in spending. With more to come, probably. And no tax increases.

10 percent of GDP here, 10 percent of GDP there, and soon you are talking about real money. Of course I could turn out to be wrong, but I think this time we will catch the inflation virus.

Written by Scott Gottlieb and others. They call it a road map to reopening, and it includes various benchmarks and milestones that might be used in deciding when to lighten up on the shut-downs. Pointer from Yuval Levin.

My main quibble with it is that I think that we should at least try a “masks and scarves” strategy in one city and compare it with the “shut down the economy” strategy in a comparable city. Although the report recommends using masks or face-covering fabric, it does not consider that this might substitute for strangling local economies.

[UPDATE: You want to object, “We can’t experiment with people’s lives in a crisis!” My response is that we are doing exactly that. We are experimenting with various lockdown policies, but not in a way that allows us to learn from the results. ]

For the future, the report recommends,

The COVID-19 pandemic has exposed serious gaps in our nation’s pandemic preparedness. COVID-19 will not be the last public-health emergency to threaten American society. We must invest in the scientific, public-health, and medical infrastructure needed to prevent, detect, and respond to the next infectious disease threat.

. . .We need to move away from a decentralized system that promotes unequal implementation of preparedness measures across the nation and toward more coordinated execution of response. . .Preparedness for public-health emergencies should be elevated as a function in the White House, with a coordinating function analogous to the director of national intelligence.

I fear that this is exactly what will happen. But it embodies a form of the Nirvana Fallacy, in which a big spending spree and consolidating power in a central agency are presumed to work. Some points to consider:

1. We already have a CDC, and it failed at its One Job. It may have done more harm than good, by trying to monopolize testing and by recommending against people wearing masks.

2. After 9/11, we created the TSA. Do we think that was cost effective? Remember to include the lost time for passengers. Plus the inconvenience and the effort it takes to implement workarounds for the restrictions on liquids.

We are in a Robert Higgs Crisis and Leviathan moment. Government officials always say in a crisis “We need more power.” They never relinquish it. Look at where the Fed’s balance sheet stood ten years after the “emergency” of 2008. It had not even come close to shrinking back toward its pre-crisis level. And now, of course, it will grow by another order of magnitude.

We have increased government spending by roughly 50 percent over last year. What do we expect to happen in 2021?

a) We go back to the old baseline level of spending.

b) We cut spending below the old baseline, as part of the process of restoring fiscal health.

c) We continued to spend about 50 percent more than the old baseline.

You and I both know that the answer is (c). Keynesians will be warning us that any “cuts” in spending will cause a recession. And politicians, having increased their ability to conspicuously bestow funds on various constituents, will not relinquish their enhanced control over resources.