No one ran up the national debt like Trump-- and no one seemed to care, even though the debt increases during his 4 years were non-productive and almost completely wasteful. The usual deficit hawks were all pretty quiet about it-- none of them screaming their heads off the way they are today.
I'm guessing that had Bernie been elected president, his Treasury Secretary would have been Stephanie Kelton, perhaps the country's most esteemed advocate of the position that deficits don't equate to the end-times. Oddly enough, Biden's economic team seems to have come to similar conclusions. This morning, writing for the Washington Post, Heather Long posed the question-- Do deficits matter anymore? Biden’s first budget signals they don’t. The agenda has proposed is very popular with the public-- and not even just with Democrats. Independent voters like much of it nearly as much and even Republicans approve of a great deal of it-- especially when they aren't told the initiatives are being proposed by Democrats. Biden's initiative will direct more money towards "education, research, roads and bridges, high-speed Internet for all, universal pre-K, safety-net programs and expanded home health care for the elderly. All together, Biden is proposing the kind of massive expansion of the federal government’s role in the economy not seen since World War II... At heart, Biden’s budget is a clear statement that many Democrats no longer worry about deficits."
Like Bernie-- although less so-- Biden would like to finance his programs by taxing corporate profits and the rich. Republicans are trying to force him into their favorite ways of paying for things: borrowing against the future and regressive taxation that slams the working and middle class with the heaviest burdens (sales taxes, user fees, VATs).
Long wrote that "The Biden administration predicts a $1.8 trillion deficit in fiscal year 2022 and roughly $1.3 trillion each year after that for the next decade. It’s a departure from the thinking of President Barack Obama’s administration, which made an effort to bring down the deficit significantly in his second term as the economy improved. Under Biden’s plan, much of the deficit reduction would come after he leaves office. According to the White House, this additional spending will produce the economic equivalent of happily-ever-after. The nation will enjoy faster growth, full employment and modest inflation that never rises above 2.3 percent, a magic number that would not require the Federal Reserve to take any heavy-handed action. In short, there would be no negative side effects."
Conservatives, of course hate it-- not just Republicans but the Republican wing of the Democratic Party, like shit-eater Larry Summers-- are are loudly screeching about inflation, higher interest rates and recession.
Most progressives find Biden's budget a first step but lacking in the kinds of structural reforms they had hoped for. The Budget doesn't do anything about raising the minimum wage, reducing drug prices, forgiving student debt, lowering the Medicare age-- a major Biden campaign promise-- or even creating a public-health-care option.
The bone Biden threw to progressives, "abolishing" the Hyde Amendment (which bars federal money going towards abortions), is a joke that no one realistically thinks will last beyond the first 15 minutes of negotiations with conservatives. It is clearly just meant to shore up Biden's image with women voters who are expected to naively take him at his word. I imagine Republicans are rolling their eyes and giggling already.
Long, though, wanted to examine whether or not deficits matter... because to the Beltway establishment, they always do when Democrats take over. "Old economic textbooks," she wrote, "taught that running big deficits to fund government spending would lead to unwanted side effects such as overheating and inflation. But a growing number of economists say this is a unique moment in time to borrow cheaply and make investments in education and infrastructure that will pay off for years to come. She worries that Congress won't approve Biden's tax increases on the rich, which will force more borrowing than Biden would like.
Top White House officials are quick to emphasize that the time is right to make these big investments. Borrowing is cheap now, they argue, and thus won’t burden the nation with hefty debt service payments down the line. Biden’s key focus, they say, is getting millions of Americans back to work quickly and ensuring that the nation remains competitive with China.
“The president’s budget improves the long-term fiscal outlook because his policies are more than paid for over the long run,” acting budget director Shalanda Young told reporters Friday. “Failing to make these investments at a time of such low interest costs would be a historic missed opportunity that would leave future generations worse off.”
Part of the Biden administration’s shift in thinking on deficits is political. Democrats have a rare moment when they control both chambers of Congress and the White House, and they are eager to go big to get as many policy priorities accomplished ahead of the midterm elections as possible. Many Democrats also felt burned after they scaled back some spending in the early Obama years to try to appease Republicans, and the GOP still largely blocked Obama’s agenda. And they are angry that Trump ran up the deficit, adding to it each year he was in office.
But there is also an economic reality driving this new thinking on deficits. Interest rates are currently at zero, and the Federal Reserve has signaled rates are unlikely to move up before 2024. Investors around the world are also still eager to buy U.S. government debt. Oxford Economics analyst John Canavan noted especially high demand for 10-year government bonds, which allows the United States to lock in low rates for years to come.
This debate about what’s ahead will also be influenced by what’s happening right now. These are unprecedented times, and no one really knows how this will play out.
Not since the Great Depression was the economy in such a big hole as it was in the spring of 2020. And now, in the spring and summer of 2021, the economy is bouncing back at a rapid pace that’s unheard of. There were a record 8.1 million job openings in March, the Labor Department reported, and data from job-search sites indicates it could easily hit 10 million when data comes out for April and May. That kind of light-switch-back-on effect has never happened. Most recessions see much more gradual rebounds. Businesses are trying to adjust, including when determining what wages to pay and prices to charge.
Already April inflation has come in higher than expected. The widespread expectation is that prices will continue to rise this summer as there’s a rush to travel, eat at restaurants and buy products again. The debate is whether prices keep climbing into next year and beyond.
Treasury Secretary Janet Yellen, a veteran of the Clinton administration and former Fed chair, has argued that any risk of inflation and overheating can be controlled.
In testimony before Congress this week, Yellen encouraged lawmakers and the public to focus on keeping debt service under control. As long as the U.S. government is not spending more money on debt service, there should still be plenty of funding for other priorities.
According to White House projections, debt service costs rise by just $31 billion in 2031 from the Biden agenda, a negligible amount. But analysts, especially on the right, point out those costs would rise significantly if interest rates move higher.