One of the most startling intellectual and political transformations of my lifetime concerns deficit spending. Politicians used to thunder about the dangers of the deficit. Sometimes they even did something about it. But the federal deficit this year is projected to be $3.4 trillion — even higher than last year’s record-breaking
$3.1 trillion — and no one seems to much care.
To be sure, public attitudes toward the national debt have been changing for a century. No one today would echo Andrew Jackson, who called the debt “the national curse” and became the only president to pay it off. With the rise of Keynesianism in the 1930s, policymakers became more willing to run a deficit to stimulate the economy during a downturn. By 1971, a Republican president — Richard M. Nixon — was quoted as saying that he was “now a Keynesian in economics.”
The rise of supply-side economics reinforced this trend. This was a kind of right-wing Keynesianism that used tax cuts rather than spending increases to stimulate the economy. Some of its proponents even hoped that by running up large deficits they could “starve the beast” and force spending cuts. With his tax cuts and defense budget increases, President Ronald Reagan increased the national debt by $1.85 trillion, or 186 percent. But he wasn’t happy about it. In his farewell address, he said: “I’ve been asked if I have any regrets. Well, I do. The deficit is one.”
The growing size of the deficit became a major political issue after Reagan left office, even though the deficits of those days seem paltry by current standards. (The 1992 deficit was $290 billion.) President George H.W. Bush may have cost himself reelection with his 1990 budget deal, which combined spending cuts and tax hikes to reduce the deficit. Ross Perot won 18.9 percent of the popular vote as a third-party presidential candidate in 1992 with a pledge to “get under the hood” to balance the budget. President Bill Clinton, working with a Republican Congress, managed to do just that. In 1998, the federal government did not run a deficit for the first time since 1969.
The era of budget surpluses ended in 2002 because of the war on terrorism and the collapse of the tech boom, but the resulting deficits generated blowback. Excessive federal spending was a major complaint of the tea party movement that emerged in 2009. In 2011, President Barack Obama reached a deficit-cutting deal with a Democratic Senate and a Republican House that included a provision for automatic budget cuts known as “sequestration.”
As a presidential candidate in 2016, Donald Trump promised to pay off the entire national debt —
$19.5 trillion at that point — in eight years. Instead, the “king of debt” increased the national debt by $7.8 trillion (nearly 40 percent) in just four years. That’s the third-biggest increase, relative to the size of the economy, of any president. Trump’s worst act of fiscal recklessness was the 2017 tax cut, which primarily benefited the rich, did little to boost economic growth and added $1.9 trillion to the debt. Republicans such as former House Speaker Paul Ryan once claimed to care about deficits, but by supporting Trump’s tax cut, they lost all credibility as budget hawks.
Then came the pandemic and the resulting recession. Congress, on a bipartisan basis, appropriated roughly $4 trillion in relief spending in 2020 and, on a near party-line vote, just added another $1.9 trillion even though the economy was already recovering. Sure, it’s popular to send 127 million stimulus payments, worth a total of about $325 billion. But is it prudent?
The Committee for a Responsible Federal Budget projects federal debt held by the public will reach 108 percent of GDP this year, surpassing the record set just after World War II. The Congressional Budget Office predicts federal debt will be more than 200 percent of GDP by 2051.
Thank goodness the Biden administration is looking at tax increases to pay for another $3 trillion in infrastructure spending. But even if all that additional spending is paid for (a big if), it won’t reduce record deficits by a penny. The implicit assumption our political class is making is that we can continue to pile up unprecedented amounts of debt with no consequence. That is the argument made by the progressive champions of “modern monetary theory,” and their views have won tacit acceptance in Washington because previous predictions of deficit doom haven’t come to pass.
But I’m worried precisely because almost no one else seems to be. The current level of debt may be sustainable as long as interest rates remain so low but, as Brian Riedl of the Manhattan Institute warns, even a small rise in rates “could bring a full-scale debt crisis.”
Too bad we no longer have a political party devoted to fiscal conservatism. Democrats don’t even pretend to care, and Republicans pretend to care only when a Democrat is in power. As my former Post colleague Steven Pearlstein wrote in a blistering farewell column, “We have entered a magical world where borrowing is costless, spending pays for itself, stocks only rise and the dollar never falls.”