Mises Wire

The New New Deal Has Already Arrived. Thank the Covid Panic.

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We’ve entered a new era of politics and government in America, and the Left is pretty happy about it. This week, for example, The Guardian announced, “Biden’s $1.9tn Covid Relief Bill Marks an End to Four Decades of Reaganism.”

From this point of view, “Reaganism” is code for extreme free market libertarian public policy. Or as some call it: “neoliberalism.”

The idea that this sort of Reaganism took over the country contradicts reality, of course. By virtually every metric—from tax revenues and federal spending per capita to the size of the regulatory state—the size of the American state has expanded relentlessly for more than forty years. 

But in many respects the headline is correct. The new covid relief bill signals that whatever restraint on public spending existed before 2020 is now all but gone. And the bill represents the beginning of a new era: an era that can be likened to the New Deal. This has long been part of the plan according to social democrats and progressives. After all, there’s been a lot of talk from the Left for years about the need for a “new new deal.” Whether it centers on environmentalism or on healthcare, everyone in these circles agrees on one thing: we need a new surge in the size and scope of the government sector.

And now it’s happened. We’re in a new era when an ongoing crisis justifies any number of drastic new measures enacted by governments. To question this, the media and the pundits insist, constitutes “denying science” or “wanting grandma to die.” The only question now is how long this new era of unbridled government expansion will last. 

Moreover, just as the New Deal turned an ordinary downturn into a decade-long depression—and did nothing to “end” the Depression—this new New Deal will only ensure that any real recovery is years away. 

A Great Leap Forward in Government Spending

The most visible aspect of this all are the immense increases in government spending that have occurred over the past year.

While it’s true the Biden administration is signing off on an immense $1.9 trillion “relief” package, the fact is the Trump administration already approved $4 trillion in new spending for covid-19 stimulus and relief bills. The Biden addition will be on top of that. To put this into perspective, keep in mind that during most of the Obama years, total federal outlays ranged from $3.5 to $3.9 trillion. Trump pushed those numbers up even further, topping $4.4 trillion in the 2019 fiscal year. In the 2020 fiscal year (which ended in September) outlays skyrocketed to $6.5 trillion. This doesn’t even capture all of Trump’s stimulus spending. Some of it will count under the 2021 fiscal year, and we still have a long way to go.

Now Biden has added nearly $2 trillion to that total, and there’s likely to be more “relief” and “stimulus” going forward.

Meanwhile, the one-year deficit exploded to $3.3 trillion in 2020, more than doubling the $1.4 trillion deficit that piled up in 2009. 

To make this all possible, of course, the central bank has furiously created newly “printed” money, showering Washington and Wall Street with dollars as the Fed bought up US debt on the secondary market and even began buying corporate debt. Naturally, the Fed’s balance sheet is now well above $7 trillion.

The overall money supply has increased by nearly one-third since last March.

Both of the US major parties have signed off on this. Political dissent in Congress is absent beyond a tiny handful of Republicans like Thomas Massie. The victory for the new New Dealers has been nearly total. 

A New Surge in the Executive State and the Regulatory State

A second major change that has taken place has been the surge in executive and regulatory power across the nation. This also reflects what happened during the original New Deal. As noted by Garet Garrett at the time, the transformation of the US into an executive-dominated regime is one of the primary characteristics of the New Deal. There had once been three separate branches, with a dominant legislative branch; the new regime was something else. Now, he pointed out, laws are routinely created within the executive branch itself, and interpreted by administrative law judged within the same branch. The old checks and balances had disappeared. 

It’s a little different this time, though, and this has perhaps been most noticeable at the state level. In nearly every US state, state governors granted themselves vast new regulatory powers, and ruled by decree.

Every few weeks—or even every few days in some cases—governors announced new regulations on a level of micromanagement that would have been considered unthinkable prior to 2020. Governors continually issued new regulations about how many people were allowed to enter a grocery store or a restaurant. They issued edicts on what sorts of masks employees and customers must wear. They dictated operating hours for all sorts of firms. During March and April, these governors even placed millions of their citizens under house arrest, threatening arrest of peaceful residents who stepped outside for “nonessential” reasons.

At the federal level, President Trump issued new edicts on federal spending, healthcare, and international travel. In September, the White House unilaterally declared that landlords were no longer permitted to evict tenants who missed rent. Millions of rental contracts were rendered null and void by a stroke of the president’s pen.

This was all done in most cases without the passage of any laws through the “traditional” methods of public debate and legislative processes. Chief executives across the nation simply did as they pleased. 

Corporatism Ascendant

Like the original New Deal, much of our new New Deal is built around cushy partnerships between the central government and immense corporate interests.

Wall Street, for example, has already become accustomed to being bailed out repeatedly by outright cash transfers to big banks and other corporate players—as happened in 2008. But Wall Street also benefits perennially from the so-called Greenspan Put which is a wink-and-nod arrangement between the central bank and the upper echelons of Wall Street.

Thanks to the Greenspan Put, Wall Street knows that if the stock markets and the financial sector face any substantial losses due to market “instability,” the Fed will intervene with injections of easy money, and asset purchase programs.

The Fed is still sitting on trillions in junk assets it bought up during the Great Recession to prop up Wall Street’s portfolios.

With the covid panic came a new round of bailouts. Sure, these bailouts weren’t like the 2008 bailouts. Things were more hidden this time around. The asset purchases from the central bank continued and were expanded. Moreover, this time the free money and the cheap loans were ostensibly geared toward medium-sized and small businesses. But, big business reaped the greatest rewards.

For example, the Paycheck Protection Program (PPP) was supposed to prop up the “little guy.” But as Alana Abramson at Time notes, the reality was something different:

The implementation of the program, says John Arensmeyer, the CEO of the Small Business Majority, an advocacy group that represents more than 65,000 independent companies, was structurally flawed. Because PPP required banks to act as intermediaries, it created a dynamic wherein larger, more established companies—often with existing relationships and lines of credit with banks—received funds before smaller operations, who feared their collapse was imminent.

The law’s definitions were also problematic. While PPP defined “small businesses” as entities with up to 500 employees, the law included a provision pertaining to the food and hospitality sectors wherein companies with individual locations of fewer than 500 people were still eligible. That meant that large, multi-million dollar chains, like Ruth’s Chris Steakhouse and Shake Shack were able to apply, often edging out the smaller mom-and-pop enterprises that the law was touted as propping up. 

This should surprise no one. Since 2008, and with a wave of new regulations imposed on the financial sector, Wall Street and the banks have become all the more geared toward working with large, established firms while smaller businesses, farmers, and other small enterprises find it increasingly difficult to secure loans, and take advantage of the ultralow interest rates that favor large, established firms.

Don’t expect this to end with covid. The first New Deal paved the way for the economic regimentation and rationing of the Second World War. It also set the stage for the war on free speech and the prosecution of “sedition” during the war. Dissent cannot be tolerated during the “crisis,” and once the regime has control of the levers of the economy, it won’t let go easily. 

On there other hand, there are signs of hope. Americans of the 1930s meekly did as they were told. When FDR told Americans to hand over all their gold via executive order, for instance, the overwhelming majority did so without complaint. The naïve Americans of that age generally believed what their politicians told them. Much of America today appears less primed for compliance. Public trust in government institutions, the media, and public health officials has gone into steep decline. This is why Biden complained last week that confidence in the regime “has been plummeting since the late 60s to what it is now.” So, he’s now, “on a mission to restore faith in government.” The good news is he’s likely to fail. 

Image Source: Gage Skidmore
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