Macro Musings with David Beckworth George Hall on the Fiscal Consequences of the US War on COVID
Jul 21, 2025
George Hall, a Brandeis University economics professor and former Chicago Fed economist, discusses the fiscal aftermath of the U.S. response to COVID-19. He highlights the rising national debt and its implications for future deficits. Hall delves into the relationship between inflation and fiscal policies, drawing parallels with historical crises like World War II. The conversation also addresses challenges in managing taxpayer concerns and the potential impacts of the Federal Reserve’s strategies. His insights reveal the delicate balance between modern fiscal demands and economic stability.
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Government Financing Mechanisms
- The government finances expenditures by exchanging resources for tax receipts, bonds, or money, each with real costs and implications.
- After wars and COVID, bonds and money partially become tax receipts by delivering low returns to holders, effectively shifting costs.
Inflation as Tax and Default
- Inflation serves both as a method to raise revenue through seigniorage and as a form of default by reducing real bond values.
- Political resistance makes tax increases or spending cuts unlikely, making inflation a probable tool to reduce real debt burdens.
U.S. Fiscal Discipline Shift
- Historically, the U.S. ran primary surpluses after wars, aligning with tax smoothing fiscal rules similar to Britain's.
- Since 2000, the U.S. resembles France, running persistent deficits post-shock, raising concerns about fiscal sustainability.