Ocasio-Cortez understands a key feature of the economy in a way most politicians miss — and it could be a huge asset for Democrats

Joe Raedle/GettyAlexandria Ocasio-Cortez at the Tornillo-Guadalupe port of entry gate for a protest against the separation of families at the border.
  • Alexandria Ocasio-Cortez rose to prominence last week with a surprise victory in New York’s Democratic primaries against a senior incumbent.
  • Ocasio-Cortez favours a government jobs guarantee and says Americans should not underestimate the power of policymakers to channel deficit spending toward social goals like healthcare and education.
  • “The idea that we’re going to austerity ourselves into prosperity is so mistaken,” Ocasio told In These Times. “Honestly I feel like one of the big problems we have is that, because Democrats don’t have a deep understanding of or degrees in economics.”

Alexandria Ocasio-Cortez, the New York congressional candidate who stunned political pundits with an unexpected Democratic primary victory, is only 28 years old.

Yet her knowledge of one of the most crucial and least understood features of the US government – the budget deficit – surpasses that of her senior Democratic colleagues in a way that will become an asset to the party if, as appears likely, Ocasio-Cortez wins her congressional seat in November.

This is her key insight: Despite quack economists’ insistence to the contrary, the US government is nothing like a household. It is not “burdened” by debt. It can borrow indefinitely, as long as that borrowing does not spur inflation. What matters, really, is the quality of the spending, not the size of the deficit.

“The idea that we’re going to austerity ourselves into prosperity is so mistaken, and honestly I feel like one of the big problems we have is that, because Democrats don’t have a deep understanding of or degrees in economics, they allow Wall Street folks to roll in the door and think that they’re giving them an education,” Ocasio-Cortez told In These Times last month.

“They’re not. It’s a con, and they’re getting conned because they don’t understand the transformative power of the purse that Congress has. It’s not just Democrats. I don’t think most of Congress understands how economics works.”

The United States is especially privileged: The dollar’s status as a global reserve currency means there’s a constant, almost insatiable demand for US Treasury bonds, seen as some of the safest assets on the planet.

Why is this basic premise so important? Because Democrats often allow themselves to be straitjacketed by unwarranted fears of rising budget deficits while they are in power. Yet Republicans, who pay the loudest lip service to the need to bring down the deficit and issue constant warnings about a looming crisis that never comes, are content to sharply expand government spending under their own watch.

Just witness this year’s massive tax cuts and budget, which the nonpartisan Congressional Budget Office expects to catapult the US deficit to over $US1 trillion next year. And it just keeps growing from there.

CBO chartCongressional Budget Office

Yet not only has the US not faced any sort of budget crunch whatsoever, it has also, against the predictions of doomsayers, experienced chronically low inflation and weak wage growth despite a recovery now in its ninth year and an expansive monetary policy from the Federal Reserve.

Ocasio-Cortez, who has an economics degree from Boston University, says the US economy needs another New Deal like the one implemented by President Franklin Delano Roosevelt in response to the Great Depression.

“There has almost never been a period of substantial economic growth in the United States without significant investment,” she said. “And no investment pays off within the same cycle. No investment pays off within the same year – especially a governmental investment. Even businesses don’t work that way.”

The problem isn’t too much spending, Ocasio-Cortez says, but rather that the funds are being channeled into tax cuts for the wealthy rather than anti-poverty measures like a government jobs guarantee.

Asked about her definition of socialism, Ocasio-Cortez, who identifies as a Democratic Socialist, told Chris Hayes on MSNBC: “In a modern, moral, and wealthy America, where we have the capacity to ensure that every American can have healthcare, an education, and access to dignified housing, we should try to do that as a society by whichever means we can.”

She added: “I don’t think any person in America should die because they are too poor to live.”

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.