Government imposition of widespread lockdowns in response to the COVID-19 pandemic have produced profound economic dislocations. Congress has sought to mitigate this economic damage by enacting a series of bills that have raised federal spending, deficits, and debt to extraordinary levels. Current deficits and debt are instructive, but insufficient, measures of a government’s financial sustainability.
There are, however, ominous signs in these current levels. Unlike in previous eras, federal fiscal policy—largely because of health care entitlement spending—has not normalized after recent economic recessions. The Federal Reserve has doubled down on the unprecedented monetary policy that it instituted after the Great Recession of 2008, and never unwound. This combination of exotic fiscal and monetary policy is moving the federal government into dangerous waters. Policymakers can make a favorable outcome more likely by reconsidering the widespread use of lockdowns, pausing before authorizing more COVID-19 spending, normalizing monetary policy, and reforming entitlement programs.