The Biden Administration and the Copernican Turn

The pandemic has led the US government to increase government spending drastically. Due to lockdowns, tax revenues decreased, so that the 2020 public fiscal deficit tripled from $1 to $3 trillion. While this may sound like a scary number, the US government cannot run out of money, given the setup of its institutions. The “public debt” is just the amount of dollars that the federal government spent into the economy and did not receive back as taxes yet. This means that we have to rethink economics and economic policymaking. While there are political constraints in place to constrain government spending, there are no technical constraints. The public deficit and the interest rate by the Fed are less important than we thought, government spending is what mostly drives the US economy. Banks, like SVB, play a role as well, financing private investment.