May 19, 2024


Today’s Events in Historical Perspective
America’s Longest-Running Column Founded 1932
Trickle-up economics
By Douglas Cohn and Eleanor Clift
          WASHINGTON — We tried trickle-down economics and the rich got richer, the poor got poorer, and the middle class became fewer. It’s time for trickle-up economics — again.
          That is how we will pay for the $1.9 trillion American Rescue Plan Congress just passed, just as we paid for the massive deficit spending necessary to win World War II. We borrowed the money, and it was returned many times over during the economic boom that followed. Targeted debt spurs growth, and growth pays debt.
          Economist Paul Krugman predicts the bill will spark eight percent growth and make it “Morning in America” once again, a phrase popularized by former President Reagan. The difference is Reagan was the champion of trickle-down economics. Now, there is a new champion in town, President Biden, and he is offering trickle-up economics.
          A check for $1,400 is going to every adult earning less than $75,000 a year, $2800 to couples below the $150,000 threshold. Eligible middle and low-income parents will receive a child tax credit of $3600 for every child under six, and $3,000 for children between the ages of six and 17.
          This is real money with the potential to cut child poverty in half. For Republicans who are bellyaching about the high cost, remind them that President Trump’s 2017 tax cut came in at exactly the same big number — $1.9 trillion – and it primarily went to high earners. Trump at the time celebrated at Mar-a-Lago and boasted to his wealthy friends, “You all just got a lot richer.”
          Wall Street loved the Trump tax cut, but Wall Street also loves the American Rescue Plan. If it were as bad a bill as the Republicans claim, the Dow Jones Average would have taken a nosedive. Instead, it is at an all-time high.
          The government is borrowing at interest rates that are so low – one to one-and-a-half percent –that it would almost be a dereliction of duty not to take advantage of this opportunity. But what if China calls in the debt? Actually, nobody has the ability to call in the debt. This is money in the form of long-term T-bill loans. All China can do is sell Treasury bills – and they can’t sell them back to the United States. We’re not buying. They would have to sell them on the open market, and they would take a financial bath. It’s not happening.
          The government can do a lot of things borrowing at that low rate. For example, if you buy a house and the interest on the mortgage is 3 percent instead of the 7 percent from earlier years, you can buy a lot more house. This is trickle-up economics at work.
          Next, you’ll hear Republicans complaining that the money is not going to the people who need it, that the government is too generous, and people won’t even be spending their $1,400 checks. They may not be spending it in the traditional sense, but they’ll be paying off credit cards, and that will help drive down interest rates. Paying off credit card debt is a huge priority for many families who lost income and relied on credit cards during the pandemic.
          We have an administration in place that is making a serious attempt to put an end to the pandemic, and it’s working. President Biden used the Defense Production Act to spur a rival pharmaceutical company to increase production of the Moderna vaccine, and this week he announced the purchase of an additional hundred million doses of the Johnson & Johnson single-dose vaccine, enough when added to doses in the pipeline to vaccinate every adult by the end of May.
          Fighting the pandemic is like fighting a war, and just like after World War II, when it’s over, there’s a lot of pent-up demand. Krugman’s prediction of eight percent growth may seem over the top, but it’s not starting from zero. We’ve lost a lot in the last year and we’re making up for negative growth with the most optimistic legislation that this country has seen in a very long time. Trickle-up America.
          Douglas Cohn’s latest books are World War 4: Nine Scenarios (endorsed by seven flag officers) and The President’s First Year: The Only School for Presidents Is the Presidency.
          Twitter:  @douglas_cohn
          © 2020 U.S. News Syndicate, Inc.
          Distributed by U.S. News Syndicate, Inc.

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