by Greg Valliere, AGF Management Ltd.
IN ALL OUR YEARS of covering Washington, we’ve never seen a swing in American opinion like the one that has occurred in the past few weeks. The U.S. public is turning leftward — favoring massive new spending, unconcerned about deficits.
GOING BACK TO ROSS PEROT’S TEA PARTY three decades ago, voters condemned deficits, and politicians sought to curb red ink. But new polls in recent weeks, including one just just released by Yahoo, show growing support for huge new spending.
THE REPUBLICAN MANTRA against deficits has had little impact on public opinion. GOP strategists think they have a winning issue on illegal immigration — and we agree — but the public wants more spending, and voters give Joe Biden generally good grades.
DON’T CRY WOLF: Perot and deficit hawks scared the public into thinking that soaring red ink would lead to inflation and sky-high interest rates, which plagued the country in the 1970s. But as budget deficits rose in the past three decades, interest rates and inflation fell — and the public now sees little negative impact of big government spending.
THE ANNUAL DEFICIT is poised to hit $3 trillion for the second year in a row, and total U.S. debt is likely to exceed $30 trillion by the middle of this decade. By the end of the decade, the economy will face staggering debt servicing costs and an aging population that will put increasing pressure on Social Security and Medicare.
BUT COVID HAS CHANGED EVERYTHING, according to the poll released this week by Yahoo. It shows 58% support the $1.9 trillion Covid aid plan; just 25% oppose it. And it has given Biden a boost — 54% approve of his handling of Covid relief, and his job approval rating in most polls is in the mid-50s.
THIS WILL GIVE THE NEW PRESIDENT a head of steam as he unveils a massive infrastructure package tomorrow in Pittsburgh. Biden may not get all of the $3 trillion he will ask for, but he’s got a chance to get at least half of that amount. (The poll shows the public wants a bill but perhaps not one that spends as much as the Covid package.)
NEVERTHELESS, THE PUBLIC WANTS TO SPEND MORE on highways, bridges, ports, clean energy, broadband, new manufacturing subsidies, etc. And clear majorities support pre-kindergarten funding, child care subsidies and more health benefits. How will Republicans counter this desire for free stuff?
IN ADDITION TO LOSING THE BATTLE on fiscal restraint, Republicans now face opposition on their traditional call for big tax cuts. The public favors increased taxes for wealthy individuals and large corporations.
OUR SENSE IS THAT THE DEMOCRATS will over-play their hand and try to do too much. Republicans will have to argue that the Democrats’ wish list will eventually bring about higher interest rates and a surge of inflation — but for now, the public isn’t buying the threat.
