Moneybeat – Lessons from 2020


MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Financial analyst and advisor David Bahnsen joins us now for the first time in 2021. And so before we get too far away from 2020, let’s talk a bit about lessons that we derived from what we went through in the past year. Obviously, COVID’s the big story and the policy response to it. But what would you say are the big lessons of 2020 in the economy generally, the markets, you choose.

DAVID BAHNSEN, GUEST: Yeah, let’s start with the economy. I think that we learned a lot throughout the year about how incredibly important it was to enter a troubled economic time with a strong economy. 

When you enter a recession with an economy that has been deteriorating for some time before the recession, it really is significantly different. And the underlying resilience—particularly the strong labor market, the buildup we had seen in some business investment throughout 2017, 18, and 19. It enabled us to come into 2020 on strong economic footing. And when this pandemic came and the shock and awe of the economic contraction of late Q1 and into Q2, I believe that that is the major economic story of what was a really, really bad moment—unforeseeable—not being as bad as many feared, not being as bad as it could have been, largely because there was a foundational economic strength. 

Now, when I say that’s the big economic story, that’s somewhat backward-looking because the really big economic story that I’m not going to lose sight of is the go-forward reality of an economy that has completely intertwined with excessive government debt and a Federal Reserve, a Central Bank that has to sort of facilitate that reality. So, I think that there is plenty to be worried about going forward. And yet the reality of this 2020 economic year was vastly different than people expected.

EICHER: What would you say is the biggest worry with that intertwining of the big debt and the Fed’s involvement with the day-to-day of our economy?

BAHNSEN: Well, the biggest worry is the cause of it, which is the excessive government debt. And the biggest worry of excessive government debt is actually not that we can’t afford it, which is generally what many people focus on. And I understand why. There’s sort of a logic and a rationality to the idea of saying there’s this excessive, huge number. We can’t afford it. Ergo, something’s really bad. 

The truth is that I think there’s a worse problem than just affordability and that is what it does to the society, what it does to the economy, which is crowd out the private sector. So, I wish that there was a more basic economic understanding—and I hope that we can provide that to the listeners even through our conversations here each week, Nick. I want people to understand that the government doesn’t have any money. And when they spend more—sometimes it’s necessary—but no matter what, necessary or not, anything they’re spending is a dollar that they took from the private sector. They either take it through the form of taxing it or borrowing it. And a borrow is a tax as well. It just gets paid in the future. 

And so therefore you have to ask yourself, where do you want more dollars to be? In the hands of the private sector where there’s a profit motive, where there’s capital allocation, where there’s rational decision making, best use? Or do you want more dollars in the hands of the government? 

Well, we need some dollars in the hands of the government. They have to run the government. But as this percentage of our economy continues to increase more and more and more, the GDP percentage the government represents has gotten to a point that it will suffocate economic growth in the future. And I think so many people are used to thinking only about an apocalypse and not what could even be worse. Which is 30 years of not having an apocalypse but not having sustained, real, organic economic growth. Much like Japan. 

And that is the economic outlook America seems more and more determined to go down.

EICHER: OK, so I think that sets up 2021 a bit of a look-ahead here. We’ve got new policymakers in town. In 2020, we had a White House in the hands of Republicans—not your traditional Republicans in the sense of being a little stingier on government spending (and I don’t mean “stingy” in a bad way)—now, to a Joe Biden administration and possibly Democrat control of the entire Congress. So, how do you look at ’21 versus 2020?

BAHNSEN: I am trying to figure out who these stingy people are you’re talking about that have been there for the last few years. I haven’t had a chance to meet any of them. 

So, yeah, I think that actually the one advantage to a Democrat being president is that Republicans do magically become stingy again. But the fact of the matter is, no, we don’t really have any party or branch of government—executive or legislative—that is particularly interested in holding back spending. It may just be a question of how it gets positioned or framed. 

But I expect that there will be an ongoing effort to use the purse of the government, which we’ve already said is really the purse of the private sector, to fund a lot of these things. And some will probably be better projects than others. 

But it is going to be different. It’s going to be mostly visible in the regulatory side. I think that there has been a pretty substantial and helpful deregulatory environment across a lot of executive branches of government for the last four years and I expect that to mostly change. 

I don’t know, though, that there’s going to be much change on the tax and spending side. I don’t think that there’s a legislative mandate to do so. We have an election tomorrow that could really codify that numerically—certainly if one or both of these Georgia Senate seats stay as they are, which is very, very possible. Then there’s not even a conversation. But I think even if it does go to a 50-50 Senate, it’s going to be very difficult to have the political will. Keep in mind, it’s not just the Senate, Nick. The House. The Democrats loss net-net 15 seats. And they’re now in that position where they know in 2022 the way midterms go in the first year of a presidency is usually not very good. And I don’t think that it will be a really smart use of the political capital to immediately go try to raise taxes in the middle of a recession.

EICHER: Alright, David Bahnsen, financial analyst and advisor. Happy New Year! Looking forward to the possibility of a Covid-free 2021.

BAHNSEN: Absolutely. Well, Happy New Year, Nick.


(AP Photo/Seth Wenig) A street sign is displayed at the New York Stock Exchange in New York, Monday, Nov. 23, 2020. 

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.

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