Government spending in the United States during the pandemic

The sum of all outstanding debt owed by the federal and national government of the United States which is composed of 50 states is known as the national debt.

During the pandemic, many nations' governments have been borrowing money to put policies into place that will promote economic activity during a time when the velocity of money has slowed dramatically. An example of this is fiscal policy in the US. This policy consists of manipulations by the government of their own expenditures and tax levels to affect aggregate demand. During expansionary fiscal policy the government reduces taxes on individuals and businesses, thus increasing investment and consumption as well as increasing their own expenditures. This causes numerous great effects on economic activity and policymakers have been hopeful that fiscal policy coupled with QE (quantitative easing) have the ability to pull the economy out of a recession.

During the 2020 US presidential elections, Biden promised US$10 trillion to be injected into areas of the economy such as healthcare. Although this was desirable during the recessionary gap caused by the pandemic, it was regarded as biased as it could’ve been used to gain political popularity during the election. Moreover, On March 1, 2021, the United States exceeded their level of sustainable debt as the debt surpassed $28 trillion for the first time and now hovers around 130% of GDP.

In the short run, the economy benefits from deficit spending because it accelerates economic growth and stability during crises such as a pandemic, however, Joe Biden’s first budget planned to undoubtedly borrow, which could be detrimental in the long run. The plans assume that net public debt will rise to 117% of GDP in 2030. Interestingly, during Joe Biden's first press conference as the new president, he omitted mention of deficits at all. This highlights the concern of questioning whether exceeding existing limits to borrowing is a responsible decision by politicians.

Bibliography

The Economist. (2021, June 5). What are the limits to government borrowing? The Economist. https://www.economist.com/finance-and-economics/2021/06/05/what-are-the-limits-to-gover nment-borrowing?itm_source=parsely-api. Romer, Christina. 2021. “The Fiscal Policy Response to the Pandemic.” BPEA Conference Draft, Spring. The Economist. (2021, June 5). What are the limits to government borrowing? The Economist. https://www.economist.com/finance-and-economics/2021/06/05/what-are-the-limits-to-gover nment-borrowing?itm_source=parsely-api.