The Government is Borrowing Money to Fight Coronavirus. What Does That Mean?

The Government is Borrowing Money to Fight Coronavirus. What Does That Mean?

Russell Hasan

Where is All This Money Coming From?

The federal government is borrowing trillions of dollars to pay for the coronavirus bailout. What does that actually mean? Where does that money come from? Who pays for it? And if the government can give away $2 trillion, why don't they do so more frequently?
The best analogy is a farmer and seed stock. A farmer harvests seed. Some of the seed, he and his family eats. Some of the seed, he saves to plant a future harvest. The seed he saves? That's his seed stock.

Economics is simple, with a few basic premises. To spend money is to consume stuff. To make money is to create stuff. You pay for the stuff you consume with the stuff you create. If someone spends money to eat food, that's like eating some of the seed. The consumer's money pays for the seed. If someone invests money, that's like paying for seed stock. If someone gives you a loan, it's like they're buying seed stock for you. You pay them back from next year's harvest.
The American economy has an enormous amount of what is metaphorically seed stock. Americans invest wealth in productive activities and reap their profits in the future. For example, an investment in real estate buys food to feed the workers who are building a skyscraper set to open in five years.

When government borrows money to give to people for them to consume with no return on investment, it is taking wealth that was slated to pay for future profits, and consuming it today. You pay the workers so they can eat, but the building isn't built.

Death Now, Death Later

The government borrowing money to give to people during the age of coronavirus is as if the farmer is about to starve to death, so he eats some of his seed stock. That is the correct decision for him. He would die otherwise. But he can't eat so much of his seed stock that he doesn't have enough left to plant for next year's harvest. If he did, he would die of starvation when next year's harvest is due to be eaten.

So the government can borrow the money, and the economy can pay for it. But there is a serious, fatal risk if Trump and Pelosi borrow and spend too much. They need just the right amount: enough for us to survive the coronavirus crisis, but not so much that the economy can't pay off the debt and goes bankrupt. Everyone dies if the government does too little or too much. Theirs is a grave responsibility. I hope they get it right.

Infrastructure and Jobs

Another recent policy proposal from Trump and Pelosi is borrowing money to build infrastructure to create jobs. That is not rational. The only reason why all the jobs went away is because of the coronavirus. If the coronavirus crisis ends, the jobs will come back. They will have no reason not to come back. And if the coronavirus crisis isn't over yet, then it's the wrong time to be gathering large groups of workers for construction projects. One infected worker could spread it to all the others. So it's pointless.

With small business loans so easy to get now, that money will be invested in private business if it doesn't end up in a federal infrastructure project. To return to my farmer analogy, it just shifts which fields the seed stock gets planted in. It does not actually create more seed for anyone to eat.

This concludes my explanation of federal debt for coronavirus relief.

Can Donald Trump Win in 2020?

The short answer is: no, and it's because of the coronavirus. In chess, when a player can take two of your pieces on his next move, if you move one to safety, then the other is lost, and this is called being forked. Donald Trump is forked. If he eases social distancing to save the economy, your grandparents die (along with up to a million other people), and the voters will blame him. If he doesn't, the economy dies and we all lose our job and starve to death. There is no winning move for him to make.
Voters won't understand, or won't care, that it is not his fault and the virus is to blame.
Ironically, the Democrats were weak foes whom I believe Trump would have beaten easily, but in the coronavirus, Trump faces an enemy as tough, as resilient, as crafty, and, yes, as contagious as he is. It is precisely the type of opponent he is ill equipped to handle and was not ready for.
I'll be voting Libertarian and have no skin in the RepPa vs. DemPa game, but right now this is Biden's election to lose.

Online Classrooms and Remote Work Might be Here to Stay

As the coronavirus crisis triggers a forced switch for schools and colleges to online learning and for office workers to work from home, it is worth speculation that some of these changes are permanent. Schools and businesses are figuring out how to do everything remotely online. That know-how is worth money, and, even after the crisis is over, they will need to recover their investment in that know-how, probably by continuing to use it. Also, real estate costs money. People are always going to pay for their homes, so if people work at home or learn at home, then the cost of the office or the campus vanishes, costs go down, so profit goes up. Sadly the joy of the experience of being on campus or in the office is lost, but once people get used to its absence they may not care. Tomorrow may be here today, earlier than any of us wanted to see it.