 I'm Ryan McMakin, I'm a senior editor, Mises.org, and frequent contributor to our articles on the front page. Hopefully you visit Mises.org daily. We run a couple of new articles there, at least a couple of new ones today by a lot of good young authors in many cases and also by a lot of our good senior fellows who are still doing work to this day. But what I want to do is build a little bit on what Jeff was saying about the federal government and its spending. While there's lots of good trends going on in terms of decentralization and people realizing that what's going on at the state level matters and that there is a lot of good resistance going on to the regulatory aspects of COVID, there's also bad stuff going on still at the federal level and a real acceleration of power at that level through what we might call a new new deal or new dealism or the new deal ideology. And this doesn't mean that it's a recreation of what happened in the 1930s under FDR, which continued of course through World War II. These new deal years really continue for 15 years almost through the 30s in the first half of the 40s. But you know what we mean by new deal in terms of the public imagination, right? We still hear this a lot from the left. We need a new new deal in order to increase infrastructure spending in America. We need a green new deal. There's always discussions about reviving the new deal and it's many presumed successes from 80 years ago. And so it's still popular. Most Americans still consider the new deal to have been a great thing and it was very successful and it got the US out of the Great Depression and those same tactics also worked in the Second World War. And in many ways, what we see going on in Washington right now is a repeat of that philosophy, even if it's not being done in the exact particulars, because of course we exist also in a very different time and situation in America. But there's three pillars that I think we could identify that are key to this and I think helps us understand to a certain extent about what's going on in Washington and help us appreciate maybe what's different from this crisis from the previous crisis. I think there's a real discernible difference between what's going on now compared to what's going on during the Great Recession. And if you're old enough to remember that, there were comparisons back then between the Great Recession and the huge spending that went on then and what happened in the 1930s in terms of regulation, government spending bailouts, that sort of thing. But what's happening now is many times larger than that and really kind of leaves the Great Recession in the dust in terms of the amount of money being spent and the deficit spending that's going on as well. And it's the fact that it's so much deficit spending that that's a significant factor that we'll talk a little bit about here as well. So what are these three pillars of New Dealism? Well, the first is that when crises hit, the federal government should spend as much money as necessary to solve the problem and there really shouldn't be any limits. In cases of domestic policy, governments should spend money and whatever amounts are necessary to keep people employed and off the streets. And if incomes fall, just have the government make up the difference and if necessary, go into debt to do so. And of course, it's clear that there's not much opposition to this pillar of it, that if you wanna sound really quaint in old fashioned, express concerns about the level of government spending that's going on in Washington right now. Second, the federal government should become the dominant institution in political life. This is the second pillar. In times of crisis, the federal government must take over the tasks of state and local government that maybe they had done in the recent past, but now can't do because they don't have enough revenue or they're unwilling to do it. The political will can't be mustard. And this can involve building vast new infrastructure projects like the Tennessee Valley Authority in the first New Deal. And also like in the first New Deal, bailing out state and local governments, that could be an issue as well. But the point is that the feds have a good ability to collect a lot of revenue and they can spend a lot more than the states can. So why not do it? And this creates a larger role for the federal government in general. And third aspect is that we should rely upon the alleged experts. Back during the first New Deal, it was Roosevelt's brain trust. We brought in, Americans learned to trust Columbia professors to solve the problems in America. And they learned that the thinking can be done in a centralized atmosphere by a group of intellectuals who can really hand down to us what the solutions to Americans' problems are. And that philosophy I think has been accelerated in recent days as well. But as we shall see, it has some deeper roots to it and is not only just a threat to local autonomy, but reflects just a general turn away from the very concept of due process and the idea that regimes should be limited in their powers, even if they can promise some great outcome from their technological innovations. So let's look first then at the deal with spending, just how much of it is going on. Now, Jeff showed some of those stats that basically they spent $6 trillion and they collected about $3 trillion. So we were looking at a huge deficit. And of course, we're in a situation now where people don't really think a trillion dollars is real money anymore. And so, oh okay, so it was a trillion dollars, three trillion dollars, what does that even mean? Well, it could be helpful to remember that in the days right before the Great Recession, three and a half trillion dollars was the entire US federal budget. And so here we are now in 2020 where just the deficit is equal to the entire federal budget from about a dozen years earlier. So that gives you some idea of the amount of growth that was taking place there. These are huge growth numbers. And so spending in 2020 exploded far beyond anything we had seen before with the exception of the Second World War and the New Deal. If you look at these charts and graphs of spending as a percentage of all GDP, you have to go back to 1945. It's not even good enough to go back to the Vietnam War to see similar amounts of government spending in terms of how much it's overtaking the economy as a whole. You gotta go back basically 75, 80 years. And so, and what it did was from 2019 to 2020 went up from 20% to 31%. These are all in inflation adjusted numbers. And in 2020, spending was nearly 55% larger than the previous peak during the Great Recession in recent years. So this isn't just a continuation of Great Recession type spending. This is basically increasing again by half as much. And so I don't think that's even really a good comparison at all. And what's interesting about it is the fact that you have to go back to World War II, I think it really indicates something about just how successful this effort has been to convince Americans that the COVID crisis is something that's just so huge, it's almost incalculable. The way Americans thought about the Second World War. So in 2021, I mean, this propaganda machine has convinced a great many Americans to see COVID in a similar way to how Americans saw the Japanese military threat in 1942. And if you measure by government spending, COVID apparently outranks even Stalin in the days of the Cold War. So Stalin getting the nuke in the 1950s didn't warrant as much government spending as COVID did in terms of people's panicky reaction to things. And so this rise of the level of people thinking, in the 40s, people thought that Tojo was gonna start bombing Los Angeles and San Diego. And so that was the sort of spending that you have now in terms of federal spending as a percentage of overall GDP. So I leave it up to others to determine. Now I actually don't think that the Japanese were ever gonna bomb the West Coast, but that was the perception. And so that was the level of the panic that existed. And apparently we're now matching that because it warrants the exact same amount of government spending and a growth in the federal role in daily life in terms of fiscal policy. And if you wanna see just how little opposition there's been to any of this, you can just look at the fact that nobody opposed it in Washington except for a tiny handful of alleged cranks, like maybe say Kentucky Representative Thomas Massey who slowed down one of the votes for a stimulus bill. And because he thought maybe we should vote on it and have a recorded vote, instead of just having like a voice vote where two people were present and we just had the leadership declare the bill passed. And so for thinking that maybe there should be some sort of due process and maybe an actual vote on this multi-trillion dollar bill, David Trump or Donald Trump declared Massey to be quote, a disaster for America, unquote, who should be thrown out of the Republican Party, quote unquote. And Democrats were not more complimentary on this, so just lifting even the smallest finger, say, hey, maybe we should vote on this. This was just the hysteria completely overwhelmed in the notion that that was appropriate policy. So Congress just became a rubber stamp. We, hey, we need to spend an extra three trillion dollars and we're gonna do it and no one should stand in the way. And it doesn't look like 2021 is gonna be much of a year of normalization either. Last month, the Congressional Budget Office estimated that 2021 will be much like 2020 with a deficit of three trillion dollars, not quite as high, but I wouldn't exactly consider a three trillion dollar deficit to be normalization. And again, 2021's numbers are second only to 2020 in terms of these huge spending numbers compared to 1945. So this is all World War II levels, level spending even for this current fiscal year even after the initial panic has died down somewhat. And so this is generational type of thing. Now, so a lot of people just say so what? So you've spent a few extra trillion bucks, we'll just pay it off later. What's the problem? Now it would be one thing if this was just a matter of well, we collected a bunch of taxes and then we redistributed them. Now you don't have to read a whole lot of articles on Mesa.org to know that there are some problems with that, that all government spending redistributes wealth from one place to another, from a more efficient use to a less efficient use, also causes lots of malinvestment in bubbles in the economy, which creates boom busts and other problems. However, there's one specific issue here that I wanna talk about and that is the monetization of this debt. This sort of spending where you spend, you just decide on a weekend, we're gonna spend an extra three trillion dollars that we don't have. That sort of spending isn't possible without a scheming between Congress and the central bank. What you need is a central bank that could essentially launder that money in the sense of it is keeping interest rates low on the debt you're issuing. So this is a somewhat complicated issue in the sense that it's not clear what this line of transmission is. But let's just spend a couple of minutes looking at it. So you want to spend an extra three trillion dollars. So what do you do? Well, obviously you could just put out three trillion dollars of extra government debt out there. The problem is, is you need to make sure people buy that debt and at a interest rate that you, as a politician, want to pay. Now obviously if you were paying 10% on treasuries, people are gonna buy it, right? That's a great deal. It's a safe investment. I'll buy a bunch of federal debt and I'll get 10% on it. But as you can imagine, federal politicians don't wanna pay in an interest rate like that. What they really wanna pay is something under 1%, which is what they're currently paying. So how do you make that happen? So the way you do it is you get the central bank to help out. Now there's of course gonna be some demand out there for federal debt no matter what and pretty decent amount of demand compared to other governments, right? Because it's not like the other governments of the world right now are being all fiscally responsible and there's austerity everywhere and they're hardly spending anything, right? The situation is even worse in Europe in many cases and China deeply in debt. And so if you're looking out there about what sorts of governments seem to be fiscally sound and whose government's debt should I buy, the US doesn't look too bad. On the other hand, when you're rolling out the door, $3 trillion worth of that debt, you aren't gonna have enough buyers at under 1%. You're just not. So somebody's gonna have to buy that up even if American debt is still pretty popular. It's not that popular. So here comes the central bank. Hey, we'll buy a bunch of that debt. We'll help make sure that the interest rate remains low. And again, why do you want the interest rate to remain low? It has to remain low because otherwise if it's not low you gotta spend huge amounts of your federal budget on debt service. So the way it is now is, okay, we spend an extra trillion dollars with the debt. We spend 1% on it. And at current debt levels that still means the United States government has to spend $345 billion a year on debt service. So that's just money that goes to paying interest on the debt. Now, to give you a sense of what sort of money that is, well, that's combined with the budgets of the Department of Veterans Affairs, the Department of Education and a nice big sizable chunk of several other departments as well. Now, obviously politicians would love to have that money back so that they could just buy more votes by pouring money into a variety of different programs. So you can imagine if the interest rate went just to 2% or so and they had to pay say 700 billion instead of 345 billion that that could force you to take huge chunks out of various popular political programs then. So there's a big political motivation in Washington to keep those interest rates low because we don't wanna have to take larger and larger shares of the federal budget of the money we used by votes and to stay popular as politicians and just pay it down for debt. Oh, sorry, we had to lessen your social security check because we had to pay an extra $800 billion on debt that we threw down some rat hole like the Afghanistan War. What they would rather have is a lot of money currently in their hands that they can spread out to the voters and then tell the voters all about it. So the political reason is huge. This is different from the economic arguments against high interest and all of that. This is just simply they don't wanna have to spend this money on things like interest so they wanna make sure they've got lots of money to spend for political reasons. So that interest rate has to stay low. So the Fed's gonna help them do it and they're gonna do it by buying up a lot of that debt and that by buying it up, they're gonna be able to keep the interest rate lower because there are artificially goosing demand basically. And so the effects of this are significant because as in past situations, what they have to do really is just create new money in order to buy all of that debt. So the question is well, where does all that debt go after they buy it, after they buy all these treasuries? Well, it goes into the Fed's portfolio and then it sits there. And currently there's $8 trillion worth of mortgage securities and a huge amount of government debt sitting in there as well. And just for an example of what happened last year, between mid-March and late June, 2020, the treasuries total borrowing rose by about $2.9 trillion. So during that period, treasury, so the federal government itself, borrowed an extra $2.9 trillion, but at that same time, the Fed's holdings of US Treasury debt rose by about $1.6 trillion. So that's a pretty hefty chunk of that new debt that's occurring that the Fed's then buying up. They don't buy directly, am I in the secondary market, but the effect is essentially the same. And just for comparison's sake, in 2010, the Fed held about 10% of all treasury debt outstanding. Today it holds more than 20%. So a sizable increase in the amount of US debt that the federal government is buying up, or that the federal reserve is buying up from the federal government and just holding in order to keep interest rates low. And so this is great for politicians. It allows them to just keep proceeding like everything's normal, like they haven't really added all that much debt and that they can just ignore the problem for now. But it should be clear by now that this isn't some temporary measure. In fact, shortly after the Great Recession, when the Fed initially bought $4 trillion or so of mortgage debt, a lot of that was to prop up the banks, so it wasn't just to keep interest rates down, but it was to keep all of this essentially worthless debt from being out in the larger economy and driving down home prices and so on, again, for political reasons. They kept saying, if you were paying attention back then, the Fed kept saying, oh, we're gonna unwind all this. We're gonna find a way to get rid of all of these assets we hold and we'll put them back into the economy. And they said that for a number of years from 2009 to about 2015, then they kinda stopped saying it. And so it's clear now that it's not some temporary measure, that they're not going to put this back into the economy. They've essentially monetized all of that, all those securities and all that debt. It turned from securities, from mortgage bonds, from U.S. debt into money, turned into dollars. And those were dollars that didn't occur today, occur before, they didn't exist before, and now they exist. It's new money that went out into the economy. So it was monetary inflation. And to see a similar situation yet again, you have to go back to the Second World War. And we have some good text on this from David Stockman, who talks about it in The Great Deformation. He says, during the war, the Federal Reserve became the financing arm of the warfare state, making short shrift of any pretense of Fed independence. So Fed independence was gone. The Fed was there to facilitate deficit spending for the federal government during the war. Treasury Secretary Henry Morgenthau simply decreed that interest rates on the federal debt would be pegged. Obviously, the only way to enforce this peg was for the nation's central bank to purchase any and all treasury paper that did not find a private sector bid at or below the pegged yields. Accordingly, the Fed soon became a huge buyer of treasury securities, thereby monetizing federal debt on a scale never before imagined. So this is a textbook scheme that central banks use. Look, we have to do a whole bunch of deficit spending. Someone's gotta buy up this debt because we don't wanna have to pay exorbitant interest rates to people who are holding out and so just have the central bank do it. Joe Solero is a great essay called War in the Money Machine. He talks about this, quote, under modern conditions, inflationary financing of war involves a government monetizing its debt by selling securities directly or indirectly to the central bank. The funds thus obtained are then spent on the items necessary to equip and sustain the armed forces of the nation. That's in wartime, but it doesn't have to be spent on military stuff. You don't have to buy tanks with it. You can just simply issue checks to everybody to stay home and not work. You can just issue checks to local governments that have gone bankrupt because they shut down all of their sources of tax revenue. And so you can use it for any purpose that you like. The mechanism is the same. It doesn't have to be used in wartime and we're seeing it being used now even though it's not wartime, it's peacetime. And so this was considered a very radical thing to do at the time, but now it's basically standard operating procedure ever since 2009 or so. We've got this thing in place. We need to issue a lot of debt. So we'll just buy more assets. The Fed will just be there to eat up what excess exists. And we'll just do it by monetary inflation, just by monetizing that debt. And this, of course, then helps hide the costs because the true cost, of course, is price inflation, booms and busts. And price inflation, we're starting to really see it. Gas prices are back to like Iraq war type levels, getting dangerously close to $4 around here. Food prices were up in one report, 31% this year over last year. Certainly services are all up significantly. Health, education, all very, very high in terms of inflation. Now, maybe those numbers will come down in the next year. Maybe 31% is the peak of it. Maybe it'll just go down to 10%, or maybe even 5%. But this is all much, much higher than what the Fed promised would ever happen. This is just a temporary thing, and we're going to manage it. And all of this monetary inflation we're doing is never going to turn into any price inflation for regular people. But we can see that that's clearly not the situation now. And so that's just one of the effects. But politically, it's very helpful because it hides the effects from ordinary people. We can do immense amounts of monetary spending. The government, without having to tax people, because if you raise taxes, that, of course, is politically problematic. People might resist to that. Aha, but we don't have to raise taxes. We can secretly get more revenue through this mechanism, the scheme we have going with the central bank. And then we can spend a lot more money. We can buy more votes with that way. We can do whatever it is that the experts tell us to do at the federal level and problem solved. So, oh, yeah, there might be a little price inflation, but whatever. Also, even better, most people don't understand how that mechanism works. So we can extract more money from the voters, from the taxpayers, through this inflationary mechanism. And this is something Mises pointed out many times, is that central banks enable governments to tax more secretly or in a roundabout way that people don't understand. And this avoids the whole trouble of having to go to a legislature, a parliament, and actually raise taxes. So this is another political benefit of having the central bank there to help with more deficit spending. So it would be impossible, without the central bank there, to do these levels of just coming up with a $3 trillion extra of spending that we're going to do. This is not something that just occurs in a normal government. What you need is something like the Fed. And so we've hidden the true costs. And what this leads to then is our second plank of New Dealism. And that is this aggrandizement of the federal government related to state and local governments in terms of its role in everyday society. And this isn't done really constitutionally or on paper, but you can see what the effect is. If the federal government consistently becomes the place that you have to go to in order to get more resources, it's going to become more important to you than the state and the local government. And of course, we see this now with the way the welfare state is constructed in America. One of the most important things that Americans could do if they really wanted to diminish the size of the federal government, they don't even necessarily have to get rid of the welfare state, which we all know is pretty politically impossible under current conditions, but they badly need to decentralize it because the way it works in America is unlike, let's say, the EU, where everyone still looks to their independent nation state for their welfare checks. In America, everyone looks to Washington for their social security check, for their Medicare, for their Medicaid, for their healthcare, and so on. So as you can imagine, this prevents decentralization in a certain way of, well, I can't have my state do its own thing because we might get cut off from the federal largesse, from the federal spigot, from the federal free money. And even better, since the federal government's the only institution that has a central bank, the federal government always has that ability to engage in huge amounts of deficit spending without rising interest rates. The state of Illinois can't do that. Sure, the state of Illinois can take on some debt. They can do lots of spending, but in the end, they can't be sure that the central bank of Illinois, since it doesn't exist, they can't be sure that they would have somebody step in to buy up a lot of Illinois' debt to keep those interest rates low. So the states are constrained unlike the federal government and how much spending they can do, and this increases the power, the relative power of the federal government over the states. So lobbyists, ordinary voters, people who depend for their salaries, for their social benefits from the federal government, they view it as a much more reliable and potentially lucrative place to go for money. And that translates into political power. So just as in the old original New Deal, in the current New Deal, we're seeing an increase in this relative power, not through any changes in law, but just from the fact, the byproduct of more federal spending occurring while state spending is basically flattening out. And that's what we've seen in recent years, is that state and local spending basically flatlined over the last couple of years while federal spending increased about 25%. And that's further increased. The percentage of federal spending as a percentage of all spending has now rocketed up to levels not seen since the old Vietnam War. So while it was somewhat declining in terms of how huge was federal spending as a percentage of all government activity, it's suddenly in 2020 spiked up to basically 50 year highs. So there's a definite different trend in place now where the federal government, fiscally speaking, in terms of the money being spent in America by governments much, much higher than it used to be. And just over time, this turns the states and the local governments into basically administrative subunits of the federal government if this trend continues. It erases the autonomy, the fiscal and the political autonomy that they might have had if they hadn't had to rely so much on federal grants, on federal welfare spending for their own citizens, and so on. And this brings us to the third plank. And this is the issue of the experts. And we've seen this nationwide. So this clearly isn't just a federal government thing, right? As Jeff pointed out, right? There's no shortage of experts at the state level and the local level working for cities and states in their own health departments that were handing out recommendations. But it's bigger in the federal government in the sense that we're relying not just on health experts for that sort of thing, although we certainly have those in the CDC and other places. And it was these health experts who were used to create this totally unprecedented moratorium on evictions, for example. And that's a perfect example of the use of the idea of the federal expert is, oh, is it constitutional? Is it legal? Is there any due process involved in installing this moratorium? No. We're gonna do it because the experts say so. And this is a fundamental shift in the thinking of how law and expertise should be used. And I came across this in a very observant essay by a French political scientist named Bertrand de Juvenel. And in 1963, you wrote a great essay called the results or the consequences of the rise of science. And it's not just a matter of people thinking government experts are great, but it's a fact that people have really increasingly started to abandon the idea that experts need to be on a lower level than the idea of due process. So he talks about how, I would say, the 18th to 19th century as classical liberalism became more popular and became a thing, people wanted to ensure that there was a reliable, stable legal process that was in place that could be relied upon and that regimes couldn't do just whatever they wanted. And so that no matter what happened, I knew that there was gonna be some sort of due process that my property couldn't be taken away without this slow, the wheels of justice turning. And what de Juvenel says is that, well, by the time we got to the 20th century, there were sociological cultural changes, political changes that really started to doubt that idea. That maybe due process was too old fashioned and that maybe not even just in times of emergencies, but in all sorts of cases where we have some great goal in mind, some great national change that we want to happen, if we're too much restrained by these old ideas of due process that stands in the way and it's an impediment to progress. And the way de Juvenel phrases it is he says that, quote, precedence is the most ancient basis of law and the safest, it's very safe. But that judicial procedure is the sole remnant of the old idea of the right way. And it's therefore an islet of stable procedure in a sea of shifting procedure. But that stands on very shaky ground now. And I think we definitely saw that with the rise of COVID regulations. Because as de Juvenel notes, social organization under the technocrats, under these experts becomes a matter of systems engineering and specific decisions become problems of operations research. Whereas the old model is this idea of a courtroom, of jurists working to make sure that procedures were followed, the new model is of a laboratory. That we have a certain goal we wish to achieve and that progress demands that we act quickly and that we just act with information from the experts and we don't allow ourselves to be held back by looking at what were some government abuses from long ago. That's just not important anymore. And if you, similar to speaking up and saying, well, I think there's too much government spending now, you would also say people would probably maybe even laugh at you if when they were shutting businesses down and telling people to stay in their homes and you said, well, where's the due process for those people? Shouldn't there be some sort of legal process before you lock a person in their home or shut down their business? And people will say, we don't have any time for that. I mean, if we don't do this executive action now, disease will spread and we'll all die. And how dare you call for due process for someone before you take their property away? Obviously you just want grandma to die is basically the line of reasoning that was used. And so it's been a significant shift that's taken place is that there's necessarily in many ways a decision that's been made rather than embracing the idea that we have the slow process, the stable process of due process, rather we want to embrace the idea of technology, of science, of progress where we have an idea of what this goal is out there somewhere and we don't have time for debating it, for talking about what's the right way to do things, what's the proper process, we just have to do it now. And especially in an emergency, this is all the more important. If we can convince the public that there's an emergency, then it becomes even more quaint to suggest that people be subject to due process. And so the old legal order in the West has basically gone into decline. The technological expert, or even the financial expert, as we've seen with all these Fed actions, right? There wasn't any real meaningful debate over whether the Fed should be able to buy up these trillions of dollars in assets. It was just agreed upon in some back rooms that this should happen. And this was all agreement on the part of experts everywhere. And so you just, it's a new cultural shift that's occurred. Return to these old dominant ideas of new dealism that to stand up against spending, that just seems silly, to call for due process, none of these things are really appropriate in what's viewed as the new reality. But we've got to keep sticking up for things like due process. We've got to keep pointing out the problems of just printing up essentially trillions of dollars in new money, of monetizing debt on such a huge level. It's not popular and it's difficult to explain to people. That's one of the biggest problems. And people, you tell people that, oh yeah, here's an economic argument right in there. Their eyes immediately glaze over. But the important thing to remember about economics is that we learn economics to understand how we're being ripped off. Because if you wanna know how you're being ripped off and who's doing it, economics is an extremely useful tool. It's the only way to learn, as Mises noted, how this tool of monetization of debt is ripping you off. How understanding how huge amounts of government spending, or really any amount, but especially when we're talking about $6 trillion worth, how it distorts the economy, how it impoverishes you, and how it sets up problems for booms and busts in the future. And you can't just know this through common sense or just simply observing people around you. We have a science of economics that's extremely useful and very important in understanding these mechanisms that work. And so of course in the Mises Institute, we try to run a lot of content, a lot of articles that explain this, but it's a difficult battle. But it is something that we have to keep an eye on. This new dealism, the amount of public resistance to these huge levels of public spending at the federal level has been broken down. And while yes, there are positive trends that are going on in terms of decentralization, there's also these negative trends that are going on at the same time in all three ways, in terms of deference to experts, in terms of building up the relative power of the federal government opposed to the state governments, and also just this runaway deficit spending that ends up in the end causing mayhem in terms of inflation and booms and busts. So we have to keep an eye on all of that. And at the same time though, maybe this time around will be better. Back in the new deal, it took 15 years really for some sense of normalcy to return, that people were so convinced in 1932 that this was the way to go and how wonderful it was, that you didn't see any opposition for more than a dozen years. So maybe things will be better this time. And I think maybe there are some reasons to believe that, maybe people will resist a little bit faster. And so I'm an optimist, so maybe they'll come to their senses in just eight years instead of 15, I don't know. But we shall see. I always hope for the best. So thank you very much. Thank you.