Since the 1990s, Italian leaders have tried to overhaul the sclerotic economy while also running tight budgets. Mr. Draghi is the first in decades who can deploy massive fiscal firepower to help.
Italy’s economy has rarely grown by more than 1% annually over the past quarter-century. The economy has never fully recovered from the global financial crisis and subsequent eurozone crisis, and slumped by another 9% in 2020 amid the pandemic and strict lockdowns.
Germany, France and other EU countries backed the recovery fund mainly for fear that Italy and Southern Europe could get stuck in another deep economic slump that once again tests the cohesion and survival of the eurozone.
Most of Greece’s debt is in bailout loans from the rest of the eurozone, with no repayments due for many years, making another Greek debt crisis unlikely for a long time.
To hear it from liberal economists, progressive activists and Democratic politicians, there is no longer any limit to how much money government can borrow and spend and print.
In this new economy, we no longer have to worry that stock prices might climb so high, or companies take on so much debt, that a financial crisis might ensue. In this world without trade-offs, we can shut down the fossil fuel industry and transition to a zero-carbon economy without any risk to employment and economic growth. Nor is there any amount of infrastructure investment that could possibly exceed the capacity of the construction industry to absorb it.
Rest assured that the economy won’t miss a beat no matter how far or fast the minimum wage is raised. And whatever benefits are required by the always struggling middle class can be financed by raising taxes on big corporations and the undeserving rich.
Gov. Tony Evers’ biennial budget proposal fulfills many Democratic priorities with big spending increases, but Republicans have raised concern that the $91 billion proposal would almost entirely drain the state’s coffers — by close to $2 billion — and leave Wisconsin in a more precarious financial position down the road.
The state is projected to have a nearly $2 billion surplus in its general fund by the end of the year, but Evers’ projected budget, which includes $1.6 billion in new tax revenue from marijuana, big manufacturers and the wealthy, still reduces that to around $143 million by mid-2023.
“It’s not necessarily inappropriate to draw down a big chunk of your reserves when you’re facing a once-in-100-years pandemic,” Wisconsin Policy Forum research director Jason Stein said. “You don’t have the reserves just to put them on a wall and admire them, but at the same time … you have to think about what’s going to be sustainable for the state budget because some of these challenges are not just going to evaporate either.”
Author(s): Mitchell Schmidt | Wisconsin State Journal , Riley Vetterkind | Wisconsin State Journal
The big misunderstanding here is that, though structural changes are certainly persistent and less responsive to policy, they are not permanent. Conditions are always changing. Productivity transforms economies, and so do shifting age structures and demographics. Foreigners are already losing their appetite for U.S. debt; much of it is now bought by the Fed or by banks required to hold it for regulatory reasons. Thus prices may not be as revealing as we think.
And we can’t be sure that debt monetization won’t unleash inflation or higher interest rates. The Fed buys bonds from the banks and credits them with reserves. Eventually banks may want to spend their reserves, and the Fed will need to sell some bonds—which could increase interest rates, or increase inflation, or both. The world could also discover a new safe asset, like German stocks. For many years, gold was considered the only safe asset, and it was unimaginable that a fiat currency could be safe.
Structural changes happen more often and much faster than people realize. We could come out of the pandemic in a new regime of less trade and more reliance on tech that could change debt and price dynamics in ways that we don’t yet understand.
Basic assumptions about the long-term costs of a public option are flawed. Research we have done shows that a public option will mean soaring deficits and debts because politicians in Washington will eventually succumb to political pressure both to subsidize enrollee premiums and to pay doctors and hospitals closer to what they are paid by private insurance rather than by existing government programs like Medicare and Medicaid. According to our calculations, the public option would add $800 billion to deficits in the first 10 years and increase the federal debt by more than 30% of the gross domestic product by 2050 — the equivalent of $6 trillion in today’s economy.
The effects on the budget are even worse when the economy suffers or if health costs unexpectedly rise. How much worse? With support from the Partnership for America’s Health Care Future — a coalition of leading health care providers, insurers, biopharmaceutical companies and employers that oppose one-size-fits-all health care — we looked at a few ways policymakers might adjust the public option to respond to future economic shocks and the impact these changes would have on long-term deficits and debt.
Author(s): Lanhee J. Chen, Tom Church, and Daniel L. Heil