The NYT Said What?
I copied below what I started the year reading in the New York Times. As I read it I wondered what was in their New Year’s Eve drink? Take notice on their concern for the debt all of a sudden and how solemn they are we need to be concerned and cut it.
If there’s one issue this blog has been clear on for a decade, its the deficit and the need to get it under control.
You will see some “editor comments” sections in bold and italics where I added some of my thoughts.
The Article And My Comments
The federal debt starts the new year at a level that is hard to grasp: $34 trillion. That is 1.2 times the U.S.’s annual economic output. At the end of World War II, the ratio was only about 1.1.
Both parties have contributed to the situation. Republicans have passed large tax cuts. Democrats have enacted ambitious climate and health care initiatives. Both funneled money to Americans in response to the Covid pandemic.
I respectively disagreed on one aspect here. Yes, both parties have contributed, but it was not the tax cuts that caused the issue. The tax cuts drove the economy and produced additional tax revenue under Kennedy, Reagan and Trump. It was not the tax cuts, it was the spending by both parties.
For years, many economists believed the country’s debt was not a problem. Interest rates were low, which held down debt payments. Inflation was also low, which suggested the debt wasn’t hampering the economy. If anything, additional government spending helped create jobs when unemployment was elevated for much of the 2010s.
No, not all economists thought it was not a problem. There were many saying the day of reckoning would come.
But times have changed, and federal deficits now look scarier.
No, the times didn’t change – the New York Times changed. You saw the light.
In November, the financial firm Moody’s lowered its outlook on U.S. debt from “stable” to “negative.” Treasury Secretary Janet Yellen said that she disagreed with Moody’s decision, but she acknowledged that current economic circumstances could make the federal debt less sustainable. And Paul Krugman, the economist and Times columnist, wrote, “Serious deficit reduction, a bad idea a decade ago, is a good idea now.”
Sorry Paul, it was always a good idea, except in times of war.
There are three big reasons to worry about the federal government’s finances.
First, interest rates have risen. A decade ago, the interest rate that the U.S. paid on inflation-protected bonds, which are used to finance debt, was near zero. Today, that rate is almost 2 percent.
This increase doesn’t change the cost of debt that the government has already accumulated. But it will have to pay more interest on future debt. So if the government does not hold down spending, debt payments will increasingly eat up money that could go to health care, the military and other programs.
Umm, didn’t you leave out reduce the debt or return overcollected funds back to the taxpayers who paid the bills?
Second, the unemployment rate has fallen to 3.7 percent. In the early 2010s, it was usually above 8 percent. Back then, government spending helped put people to work. Today, the private sector needs less help.
The private sector also needs less regulation.
Third, inflation is a bigger problem than it used to be, and higher deficits could make it worse. When Congress spends more or cuts taxes, Americans have more money to spend. As they spend that extra cash, prices tend to increase. The reverse is true as well: A smaller deficit can ease inflation.
Editors Note: Umm, government deficit spending produces inflation.
All of which means that the benefits of deficit spending are smaller than they were in the recent past and the costs are larger.
Umm, it was the path you were going on when you kept yelling for more spending.
There is also a risk to procrastination: The longer the government puts off the issue, the harder it gets to solve. By acting sooner, officials could phase in higher taxes and lower spending over years to mitigate the downsides. Some experts argue that the country is already past that point. “We put off solutions for too long, and now we’ll have to take more drastic action,” Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, told me.
Yes, there is a risk to procrastination; however raising taxes would slow the economy and add to the problem. The answer is to cut spending while we grow the economy. Try stimulating with tax cuts and not spending. Add, less regulation on business and turn the economy loose.
The solution remains unclear. And the economy may be able to continue growing at a steady clip for years despite the debt. At some point, though, the federal government will likely need to raise taxes and cut spending in ways that many Americans will find unpleasant.
There you go again with raising taxes. You were wrong to get us in this mess, and your solution is wrong. It’s good you finally recognize the problem, but get it right.