On Thursday, when the Department of Commerce reported an estimated annualized loss of 32.9% for the second quarter’s GDP growth, it was the worst number that the United States had seen since GDP accounting began in the 1930s. The agency also provided a supplemental table that explained what happened to total personal income for all people taken together. The table contains the essence of the challenge Congress faces in coming up with an aid package that both assists struggling households and gives a shot in the arm to a coronavirus-stricken economy.
The data there are troubling for another reason. It appears that the pandemic has caused us to burden our grandchildren with a huge debt so that much of the current generation can put more money into savings accounts. That’s right: Congress seems to be caught in a dramatic struggle to increase transfers from future taxpayers to present ones who are busy squirreling it away.
Surprising at first blush, the data show that personal income actually rose by $1.3 trillion in 2020’s second quarter, bleak GDP growth notwithstanding. Of course, the increase didn’t come from an increase in real, prosperity-generating economic activity; it came as the result of an increase of $2.4 trillion in government-provided benefits in the form of income supplements, unemployment benefits, payroll protection plans, and other coronavirus-related funding.
As a result, personal savings rose $3.1 trillion to a level of $4.7 trillion, all in one quarter. Meanwhile, consumer outlays fell by $1.6 trillion. After all, much of the economy was closed down. With nowhere to shop, consumers tucked the money away for better days.
Of course, this aggregate accounting hides what is surely happening for many families. There are more than 20 million unemployed people, and the largest share of those are low-income earners who previously worked in hotels, restaurants, and drinking establishments. These are surely not the ones who are trotting to the bank each month to put happy bucks into their savings accounts.
Nonetheless, the Department of Commerce data tell us that all people taken together are doing just that. Should we really be adding several trillion dollars to the debt burden that must be borne by future generations, when the bulk of the money raised goes into savings accounts? I don’t think so.
So, here’s the challenge for Congress in designing the next benefit package: finding a way to target supplemental income and unemployment compensation so that those who need it most get it first. Congress should take a pledge to always ask how we can justify imposing a heavier tax burden on future generations if the money we are getting is going into certificates of deposit and 401(k) accounts.
Bruce Yandle is a contributor to the Washington Examiner's Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
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