The Senate Finance Committee held a confirmation hearing Tuesday for Janet Yellen — President-elect Joe Biden’s nominee for treasury secretary.
A big chunk of the hearing was spent on how much the government should spend to get the economy back on its feet. At one point, Yellen, a former Federal Reserve chair, told the senators the government should spend big, without worrying about adding to the debt. Interest rates are low.
“To avoid doing what we need to do now to address the pandemic and the economic damage that it’s causing would likely leave us in a worse place economically and with respect to our debt situation than doing what’s necessary,” she said.
The thinking of Yellen, and many other economists, goes like this: We need to borrow and spend whatever it takes to get the economy back on its feet, now.
Former Fed economist Claudia Sahm said to think of the economy like a house with a leaky roof. If you don’t fix it now, you’ll have a big, expensive mess to clean up later, when it rains.
“And that all costs so much more than if you’d just fixed the roof in the very beginning when you saw that we had a problem,” she said.
Sahm added that if the government doesn’t pour enough money into keeping businesses going so they don’t have to lay off employees, the economy won’t fully recover.
Besides, said Doug Elmendorf, dean of the Harvard Kennedy School and former director of the Congressional Budget Office, if you invest in the economy now, you can help it not just recover — you can make it stronger.
“If we use government borrowing to build infrastructure, conduct research, then the debt will leave our children and grandchildren better off because of the value of those investments,” he said.
At Tuesday’s hearing, Yellen said we do need to be responsible about the growing federal debt. But David Beckworth, senior research fellow at the Mercatus Center at George Mason University, said investing now means the debt will be less of a burden.
“So the more people are working, the more taxable income there is, the more revenue the federal government gets and the easier it is for the federal government to pay off the debt going forward,” he said.
Beckworth added that the national debt could even double without causing big problems that would trip up the economy right now.