On March 27, 2018, a group of economists at the conservative Hoover Institution published an opinion piece stating that A debt crisis is on the horizon. They wrote:
For years, economists have warned of significant increases in future public debt burdens. That future is at our doorstep… Unless Congress acts to reduce federal budget deficits, the outstanding public debt will reach $20 trillion in just five years, up from its current level of $15 trillion of dollars… When holders of treasury debt begin to doubt our government. repayment capacityor to attract future lenders, they will demand higher interest rates to offset the risk… Such high interest payments would move funding the expenditures necessary to restore our depleted national defense budget, our national infrastructure, and other critical government activities…
About a week later, five former chairs of the White House Council of Economic Advisers, including Janet Yellen and Jason Furman, responded with an op-ed. They headlined it A debt crisis is coming. But don’t blame the rights. Here is his opening paragraph. Check out how affirms instead of counters the core of the conservative argument.
A group of distinguished economists at the Hoover Institution, a public policy think tank at Stanford University, identifies a serious problem. The federal budget deficit is on track to top $1 trillion next year and get worse over time. Finally, constantly increasing debt and deficit will cause interest rates to riseand the share of tax revenue needed to service the growing debt will take an ever-increasing toll capacity of the government to serve its citizens and respond to recessions and emergencies. None of this is in dispute.
As a reader of the lensyou know when the debate expands to include voices like mine, all of this is in dispute But among establishment figures on both sides of the political aisle, there is shared agreement that something must be done to address America’s looming debt problem.
So the debate, such as it is, revolves around what policies got us into this (supposed) mess, what we should do about it, and how much time we have to address the so-called problem.
That debate will intensify tomorrow, when President Biden meets with House Speaker Kevin McCarthy (R-CA) to discuss raising the debt limit. McCarthy has succeeded clear what the Republicans are looking for (unspecified) spending cuts in exchange for their help in raising the debt ceiling. Meanwhile, the White House says it’s in no mood negotiate The president wants a clean vote to raise the debt limit and has threatened to “veto everything” if Congress sends him a deal that includes spending cuts that would jeopardize the economic recovery.
How this ends is anyone’s guess. But one thing is clear: No one in either party seems willing to have an honest conversation with the American people. Yes, legislators of both sides from the political aisle we’re talking and tweeting about how our (supposed) debt dilemma is mostly the other party’s fault.
It could be argued that it is endemic to our politics. From my time working for Democrats on the US Senate Appropriations Committee I know that messaging is everything and that politicians rarely stray from their talking points. There is also comfort in the familiar.
Not that there isn’t a cohort of lawmakers who have been there exposed to alternative ways of thinking about these issues. It’s just that most of them haven’t figured out how to talk to the American people without starting from the shared premise that our nation faces a serious debt problem. And once you admit there is a debt crisis, you have no choice but to identify the culprit.
Unfortunately, among economists you will find the same point of view.
For example, conservative economists at the Hoover Institution he pointed with his finger in programs like Social Security and Medicare, highlighting them as the main drivers of our (sustained) debt crisis:
As is well known, our deficit and debt problems stem from a sharp increase in entitlement spending… To address the debt problem, Congress must reform and curb the growth of entitlement programs and adopt more fiscal policies and pro-growth regulators… If Congress acts now, it can prevent a fiscal collapse… It’s time to act.
Not too fast, said the former presidents of the CEA who served in democratic administrations:
It is dishonest to highlight the rights to blame…[They] they are not the primary cause of the recent jump in the deficit… The federal budget was in surplus from 1998 to 2001, but large tax cuts and unfunded wars have contributed greatly to our current deficit problem. The main reason the deficit in the coming years will now be larger than expected is the reduction in tax revenue from last year’s tax cuts, not an increase in spending.
In other words, our guy (President Clinton) presided over a balanced budget, and then your One guy (President GW Bush) came in and racked up a ton of debt with his tax cuts and “unfunded” wars in Iraq and Afghanistan. Yes, we’re in trouble, but it’s your fault, not ours.
It’s so counterproductive.
The pandemic gave us a brief respite from this pointless finger-pointing, as Democrats and Republicans, working together, used fiscal deficits to shore up the balance sheets of families, businesses, and state and local governments. When reporters raised concerns about how much the government was willing to spend, President Trump dismissed any cause for alarm, explaining“It’s $6.2 trillion and we can handle it easily because … it’s our money. It’s our currency.”
I hate to tell you, but he was right.
In the initial phase of the pandemic, hardly anyone pointed the finger at the increase in the fiscal deficit or the increase in (called) national debt. Holders like this one, proclaiming that we are all MMTers now, became commonplace. It started to feel like we could have an honest conversation about limits on government spending.
But now we’re going backwards.
The debt ceiling fight has drawn new attention to the projected path of future spending relative to revenue. The annual deficit already exceeds $1 trillion and is expected to increase sharply (for a variety of reasons, including the Federal Reserve’s interest rate hike) in the coming years.
Instead of opening up an honest dialogue about what all this means (and doesn’t mean) for the lives of everyday people, it’s back to finger-pointing.
We can go on this way for another half century, trading punch lines like, “Republicans only care about deficits when a Democrat is in the White House.” Or we can stop it and finally have an honest conversation.
How refreshing would it be to turn on the TV and find a member of Congress flipping the script? Pressed to share their ideas on how to tackle America’s “growing debt problem,” imagine hearing them discuss these talking points:
There is no debt crisis. Not today or on the horizon.
The national debt poses no risk to our country’s finances.
The so-called “debt” is just the dollars we spent but didn’t pay back in taxes.
It is part of the broader US money supply.
It will not leave future generations with a lower standard of living or a crushing burden of debt and taxes.
It’s nothing like using your personal credit card.
We do no eventually you will have to “pay for it”.
This is not a complete list, feel free to add your own in the comments, and lawmakers should be well equipped to defend each statement. It would take some hard work, but it can be done!
how do i know Because the (now former) chairman of the House Appropriations Committee, John Yarmuth, he has done it.
There’s another reason why finger-pointing is so frustrating. While Democrats and Republicans blame each other for “blowing the deficit” with tax cuts, unfunded wars, spending on social programs, etc., the truth is that much of what actually happens depends on the state of our economy.
As MMT economist Eric Tymoigne shows this recent article, deficits shrink in a booming economy (especially since a progressive tax code substantially increases tax revenue). Over time, if the deficit comes too small to support the private credit structure, stifles the boom. Unless something happens to recharge aggregate demand, the slowdown may evolve into a recession. When this happens, the automatic stabilizers turn the other way, increasing the deficit.
You can clearly see this in the data. When the unemployment rate rises (blue line), the public budget tends to run more into the deficit (red line). Over the last year, the opposite happened. As we like to remind President Biden, the fiscal deficit was reduced from $2.6 trillion to $1.4 trillion last year. This was partly due to the ongoing economic recovery.
But what if the recovery falters, as most economists predict, sometime this year?
I would suggest that Democrats should be especially careful with their finger at this point. Leaving aside the fact that his rhetoric is reinforced dangerous myths On the government finances, they should think about whether all this bragging about deficit reduction will serve them well if/when the US economy goes into recession before the next election. If that happens, there’s a good chance the deficit will increase as we head into 2024.
So let’s stop pointing fingers and improve the conversation. Here’s another talking point to get you started.
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