- Do we need to worry about the deficit right now with interest rates at zero and the economy in a full blown depression?
- Experts say no.
- Will that stop Republicans from having a conniption fit about it next year?
- Of course not.
- This is an opinion column. The thoughts expressed are those of the author.
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I generally don’t like to make year-end predictions, but watching Congress debate another coronavirus aid package makes it almost impossible not to make at least one.
So here goes: Next year, the stupidest argument we’ll hear in Congress will be that we need to cut spending on government services or programs to lower the deficit. We will hear this from Republicans constantly, and they will keep saying it no matter the evidence to the contrary.
Even now â€” while this country is staring down months of unchecked virus spread, mounting job losses, and shrinking hospital capacity â€” Senate Republicans are trying to cripple a recovery before it starts by underspending. Senate Majority Leader Mitch McConnell called it “a matter of genuine concern” after Washington passed the first pandemic aid bill, the CARES Act, back in April. It’s part of the reason why Republicans have held up negotiations for a second round of aid since then, bringing us to our current, desperate moment.
On Friday, citing our need to control the deficit, Republican Sen. Ron Johnson of Wisconsin, blocked his fellow Republican Sen. Josh Hawley’s proposal to send out another round of $US1,200 checks to struggling Americans. (Democrats are also in favour of the measure.)
Also this week, Republican Sen. Pat Toomey of Pennsylvania tried to add a measure to aid legislation that would end the Federal Reserve’s emergency lending program by the end of the year â€” as if the pandemic would suddenly stop hurting the economy on January 1, 2021. The program was created as part of the first CARES Act, to help out small businesses, local governments and to stabilise credit markets. Democrats argue that it should operate until 2026.
Why it debt doesn’t matter right now
If there’s anything we learned from the financial crisis, it’s that if the government is stingy with relief early on it will mean the economy will take longer to recover. Back in 2008 Republicans argued that if the government spent too much money interest rates would spike and we would be unable to make payments on our national debt. That never happened. Interest rates are at historic lows, and it’s forcing economists to rethink what they thought they knew about how debt works.
This lesson is making some interesting bedfellows in the “don’t worry about the debt right now” camp.
Like this former George W. Bush Treasury official, Tony Fratto tweeted:
“It’s obvious now that we’ve under-borrowed and under-invested by trillions of dollars over the past few decades; bond vigilantes are phantoms; and productivity & standards of living would be higher today but for the debt fetish. Don’t have to be an MMTer to see this.”
And this Obama economic adviser, who is pointing out that demand for our debt is still high and interest rates are so low that the cost of servicing our debt has actually decreased:
— Jason Furman (@jasonfurman) December 16, 2020
Truly, an odd couple.
And of course then there’s the current Trump-appointed Chairman of the Federal Reserve, Jerome Powell. On Thursday he said that the case for more aid is “very, very strong,” and that debt and the deficit are things we can focus on later “when the economy is strong, unemployment is low and taxes are pouring in and there’s room to get on a sustainable path because the economy is doing well.”
Do not expect any of these arguments to carry weight with Republicans like Johnson and Toomey next year when we’re still struggling to get out from under this pandemic and its economic depression it has caused. Incoming President Joe Biden has said that the aid bill Congress is working on now is just a down payment on what his administration wants to spend to get us out of this mess. With interest rates as low as they are that makes sense, but Republican deficit fear mongering isn’t about sense, it’s about an ideological obsession with the shrinking the government’s capabilities no matter what the circumstances.
So expect to hear this stupid deficit argument over and over again next year.