Count costs first

Economic chickens come to roost

The year 2023 has arrived, and we wonder: What happened to the U.S. economy? In January three years ago, Americans enjoyed low inflation, a humming economy, low interest rates, and a U.S. federal government that was trillions less in debt.

This is where we were in January of 2020 when the coronavirus hit the world and common sense flew out the window. Panic can be destructive, and it certainly was in this case. With scant public information about the nature of the virus, exactly who was going to the hospital, and who was most susceptible, we shut the economy down. As it turned out, most of the working-age population, particularly the young, were not in much danger from the virus. Seventy-five percent of the fatalities occurred in the over-65 age group.

Did anyone count the cost of shutting down a $22 trillion economy in terms of jobs lost, incomes vaporized, businesses destroyed, education halted, and debt accumulated? The U.S. did what no nation should ever do: It shut down. And much of the world followed suit. The bottom line is we as a nation panicked, and we forgot to count the economic cost. Moreover, as it turned out, the health benefits of the shutdowns have proven difficult to document.

As a result of our hasty action, by the second quarter of 2020 the U.S. economy was declining at a 33 percent annual rate. We were headed for a second Great Depression. Fortunately, the Federal Reserve System and the federal government recognized what was unfolding and threw money at the problem fast. They dump-trucked approximately $2.5 trillion on the economy, which halted the decline and created the shortest recession in our history.

Although the national economy reopened in April, unfortunately many states continued lockdowns well into 2021. California’s emergency declaration will not officially end until next month. Interestingly, China made an even more serious mistake with its zero-covid policy, which produced economic calamity for the nation. States which decided against lockdowns (like Arkansas) found their economies not only did very well during 2021 and 2022, but many actually prospered.

By late 2020, the economy was showing good signs of recovery. However, an additional $900 billion in stimulus was added in December by the Trump administration for what some referred to as “recession insurance.” The Biden administration wanted to get on the bandwagon and threw an additional $1.9 trillion on the economy in March of 2021. All of this was followed by a $1 trillion infrastructure spending bill.

This led us to where we are today. Small wonder that massive national and state shutdowns, which hammered the supply chain both here and abroad, plus runaway stimulus spending, created an inflationary spiral. Less stuff and more money! What a prescription for heartburn. Stuff is hard to get, and when you do get it, it costs more.

All of this could have been avoided, and our federal government would not be facing over $31 trillion in debt. It is interesting that Sweden did not shut down its economy. It managed the pandemic and kept its economic wheels turning.

However, in the U.S. we followed a different policy, and now the economic chickens have come home to roost. We are just going to have to tough it out and struggle through inflation, higher interest rates, and stock market turmoil. Oh, and figure out how to handle an unexpected additional $6 trillion in national debt.

Government created the problem and then rushed to save us from it. If the nation had been more sensible and careful (as we were here in Arkansas), we could have dealt with the health issues and avoided the economic damage and inflationary pressures we are experiencing today. And now, the Federal Reserve System is lining up to save us from inflation. The process will not be without pain, I might add.

Next time, let’s count the cost and then make the decision.

Dr. David F. Rankin is president emeritus at Southern Arkansas University where he’s been a longtime professor of finance and economics. For the past 26 years, he has been chairman of the Governor’s Council of Economic Advisors and is the author of “What Every American Needs to Know about Economics.” He may be reached at www.davidfrankin.com.