Kevin Hassett of the American Enterprise Institute has a bizarre column up on Bloomberg titled: “Cheney Was Right All Along About Deficits.”
In it, he says he’s always basically agreed with Cheney’s famous quip “deficits don’t matter,” though he calls Democrats hypocrites for claiming at once that tax increases will help the economy (by closing the deficit) while also promising to spend like crazy on healthcare (expanding the deficit).
Then he says that academic literature has found little link between deficits and interest rates, but then he says there’s a small subset of literature, which says the two are strongly connected, and that at our deficit-to-GDP level, we might see Treasury yields jump between 260-780 basis points.
Then he ends with this:
If Obama wants to pursue yet more spending, he should at least level with us and explain why he believes we can afford to risk higher interest rates.
But that talk will only happen in our dreams. The fact is, deficits are a problem precisely because politicians can get away with running them with near impunity. If interest rates did soar in the face of deficits, it would provide a constraint on the growth of big government.
Sadly, there will be no such constraint.
So in other words, his conclusion is that he wishes deficits mattered, because now it’s Democrats in The White House, and Democrats have all kinds of spending plans? Sadly, he still believes they don’t matter — which, in theory, means that these spending schemes won’t be a big deal.
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