MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.
NICK EICHER, HOST: Financial analyst and adviser David Bahnsen checks in with us. David, I hope you had a wonderful Christmas with your family.
DAVID BAHNSEN, GUEST: Well, same to you, Nick, and good to be with you. Getting ready to go into the new year here.
EICHER: Right and finishing the old one with a surprise. It appeared Congress and the White House had a deal, a grand bargain among Democrats and Republicans to put differences aside, hold their noses, and fast-track a COVID relief package. And then all of the sudden—now, this may have come as no surprise to you, but it certainly came as a surprise to me and I don’t think I was alone on that—that President Trump just reversed course.
BAHNSEN: Well, I don’t think there is anybody who fully knows exactly. He was totally, completely removed from the process of negotiating the bill. He had indicated to Secretary Mnuchin 10 different times that he was on board with what they were doing. And there’s a lot of people that are really against the bill. They think even the $900 billion is just way, way, way too expensive for what the need is.
It’s important for people to understand, though, that President Trump’s criticism is not that it’s too expensive. It’s that it’s not expensive enough. He’s asking everyone to spend a little bit more than three times the amount of money that they’ve budgeted as direct payment to taxpayers.
Well, of course, Pelosi just said, “OK, great.” And she threw, upon hearing that Trump was demanding a $2,000/month payment to everyone, she went and said, “Yep, you got it,” and put in an amendment to the bill to do just that, which of course the House Republicans voted down. So President Trump’s actions here have been able to pit himself against Republicans, not against the Democrats. It’s a very strange set of circumstances.
And as you and I are recording, we don’t really know what he’ll end up doing, because he has this very complicated thing that essentially is a pocket veto. If he just sort of vetoes the bill right now, there’s no question that both the House and Senate, they’d be able to override the veto. It passed by a massive majority in both chambers of Congress. And, yet, because he can sit on it for 10 days—normally it would just go into law if he does nothing for 10 days—but in this case, that puts you past January 3rd, into the new session.
So if he does nothing, then technically Congress has to pass a new bill, and yet that would also delay the unemployment extension, it would delay all kinds of other activity. So, the right thing to expect here is that he’s not doing that and we really just have to assume that one way or the other this is going to get resolved.
EICHER: You and I are pretty conservative guys on federal spending—meaning, we’re not crazy about big government programs—but just for the sake of argument: Does President Trump not have something of a point here, that after everything that government has done to business and all the rest of us with the COVID lockdown policies, to say, “well, here’s $600, let’s call it even. That’s not good enough.” That’s what he’s saying.
BAHNSEN: Well, the $600 isn’t the essence of the bill. It’s $166 billion of the bill and I’d be very happy to take that $166 billion and give it to the businesses that are affected.
My criticism of this $600 payment, let alone a $2,000 payment, is that it is indiscriminate as to who it goes to. There are 90 percent of people that have not been impacted by the lockdowns that would receive the money, when in fact the people that have been affected would be receiving a much diminished figure relative to what it could be if it were actually added to small business support.
So, there’s over $300 billion in the bill that is going to a PPP reload, allowing those businesses that have been so unfairly treated by these government lockdowns—both the one that President Trump did back in March, April, May, and the one that various governors and mayors have been sort of arbitrarily doing here in recent months. There’s no reason that those funds cannot be very targeted and very effectively spent, which I would argue is certainly what happened with the first PPP.
So, I don’t think that it’s a matter of $600 a week is insufficient to those that have been affected, I just think it’s the wrong way to get a $600 payment or a $2,000 payment to anyone. The indiscriminate nature of it is a real problem.
EICHER: Let’s quickly hit some of the economic data. I saw—and I wonder how you interpret this—I saw a report that household spending dropped in November, month on month, November versus October, first time in seven months. Is this a signal of concern to you at all?
BAHNSEN: No, because they’re year-over-year. And year-over-year, the numbers are higher. The month-over-month having gone down is really kind of noise. But what you have to do to get apples to apples is look at how people in November of one year spent versus how they spent in November of the next.
But when you’re talking about a consumer in total that has actually spent about four percent more year-over-year than last year, and that was with this pandemic, I think it’s actually really stunningly bizarre.
Now, why I as an economist don’t actually find it bizarre is because I can explain it by access to credit. And you will never find a time when the American consumer is not willing to spend money when they have access to credit. When credit tightens and they can’t spend, that’s what you call a recession. But you really do not get recessions—and this is what makes Keynsians so mad when I say it, but I’m right [laughs] is that you don’t have periods where Americans all the sudden lose their animal spirit to consume. Americans are always very, very willing to go spend money. The key is they have to have access to money and declining wages or declining credit can mess that up. But really in this case there’s such a fluid amount of credit in the American economy that you see very little spending being held up by lack of demand.
EICHER: Alright, David Bahnsen, financial analyst and advisor. Happy New Year!
BAHNSEN: Thanks so much, Nick. Happy New Year.