Of the persistent problems in American policymaking, our national obsession with the deficit is the most frustrating. To be clear, this is a problem that affects both Democrats and Republicans but for different reasons. The Democrat’s deficit paranoia is evident in examples such as President Obama’s “Grand Bargain” with Republicans that would cut Social Security and Medicare while raising taxes simply to reduce the deficit. On the Republican side, Ted Cruz seems to be an alien creature whose life force is sustained only by pretending that the deficit has any discernible importance to the vast majority of Americans.
Absent from all these commitments, at least on paper, to reduce the deficit is an explanation of why the deficit actually matters. Of course, there is the traditional economic explanation. Namely, that there is a finite amount of money available for lending, so when the government consumes all the available money it “crowds out” private investors which ultimately drives up interest rates, spikes inflation, and slows down economic growth.
No one actually argues that position, though. Instead, we get a false analogy between personal spending and fiscal policy. Then-Senator Obama was expressing a common opinion when he called the deficit “a sign that the U.S. government can’t pay its own bills.” The implication being that if somebody told you to always spend more money than you make you would understand that to be bad financial advice – which it is, but the Federal Government is not a person. No one is coming to foreclose on the Pentagon because it’s in debt; after all, deficits are precisely how the government pays its bills.
Obama was expressing what can generally be described as the “fiscal responsibility” argument for managing the deficit. This argument, though unsubstantiated by reality, is at least made in good faith. Obama, and Clinton before him, genuinely shaped their policy ambitions around limiting the deficit. Democrats gave up social spending they otherwise would have wanted because they, misguidedly, believed the deficit to actually be a salient problem.
The Republican deficit argument, which had its avatar in the Tea Party, is far more cynical. On face, Republicans express many of the same views that deficit-wary Democrats do. However, Republican deficits speak far louder than Republican words. Fiscal discipline seems to only be relevant under Democratic presidents. It certainly was not a concern when the 2017 Tax Cuts and Jobs Act (TCJA) increased the deficit by, at least, $1.9 trillion over the next decade. Mind you, this was under the President who promised to completely eliminate the national debt. Nor have Republicans come to realize their deficit-hawkery was misguided, to quote Glenn Kessler, the chief fact-checker at the Washington Post, “Like a phoenix, the deficit hawk will back soon enough, as soon as it is politically convenient.”
All of this is not to say that deficits are completely unimportant. It is very possible that at some, very large level of debt we will start to see negative economic consequences. While the Federal Government should not start burning dollar bills in front of the Fed for fun, we should be willing and ready to spend a lot more money on good policy that improves people’s lives.
As an example, if we are presented with a choice between passing national paid family leave legislation and reducing the deficit, we should consider the consequences each option would result in for most Americans. On one hand, paid family leave would allow parents to not lose their jobs when they have children while also improving the health of their children. Alternatively, deficit reduction would possibly, though uncertainly, reduce future interest rates by a fraction of a fraction of a percent. The choice seems clear enough. We should enact policy that makes living in the United States better rather than obsess over hypothetical interest rates.
The incoming Biden administration, at least in domestic policy, has three priorities it must address starting in 2021: COVID, the economy and climate change. Recent vaccine news is encouraging for the end of COVID, and the economy seems well placed to grow in 2021, but bare growth is not enough. The economy was doing extraordinarily well before the pandemic, and we must try and reach that type of economic activity again. In 2018 and 2019, economists were dumbfounded by the ever-increasing share of the population who were finding employment. Over and over, our notion of what “full employment” actually was got pushed higher and higher. The previously unemployable people in America were finally finding jobs, and those jobs won’t come back for a long time if we only have meager economic growth in 2021.
Biden and the Democrats must be ready and willing to abandon fiscal restraint in negotiations with Republicans. Though some Senate Republicans will wax poetic about deficit reduction, the caucus seems more politically and ideologically committed to tax cuts. In 2017, led by Pat Toomey, the pro-growth, pro-business wing of the Republican Party was able to trounce the deficit hawks to pass a greatly expanded, unpaid-for version of the TCJA. It is in that narrow slice of Republican ideology that Biden and the Democrats have a chance to negotiate. Democrats can and should offer Republicans the tax cuts they want, especially extensions to certain provisions of the TCJA that are set to expire, in exchange for serious spending on economic and social priorities. An offer to extend full expensing on equipment past 2021 in exchange for $2 trillion in COVID stimulus might just be too good for some Republicans to pass up.
This is also where Biden’s third priority, climate change, comes back into the picture. The prospects of climate action are not favorable with a Republican Senate, so though Democrats should still try to pass some bipartisan bill, the best chance of meaningful climate action is a Democratic trifecta. If Biden presides over a historic COVID economic bounce-back, then he can—just maybe—be popular enough to buck history and not only keep the House but also win the Senate in 2022. At the very least, let’s not sacrifice the climate to shrink the deficit, okay?
