Time to Stop Believing Deficit Bullshit


What do you do if you have a philosophy that over the course of half a century, is continually proven wrong?

I do not mean a little bit off, or theoretically askew, but verifiably, factually, quantifiably wrong? Do you admit the error and change course? Or do you double down and keep repeating the same nonsense, hoping that maybe in another half-century you might be proven right?

Which brings us to those of paragons of Puritan fiscal morality, the deficit fighters.

They have been repeating the same arguments, again and again, my entire adult life. They make dire scary warnings about government deficits, and yet none of the things they warn about ever come true.

We are told (over and over, again and again) that if we allow the federal government to deficit spend, a parade of horrors awaits us, including:

• Excess Federal spending will crowd out Private Capital, choking innovation and new company formation;

• The costs of US borrowing will skyrocket, making the debt impossible to manage;

• The US Dollar will be devastated, and it will be radically devalued against all other currencies;

• All of this will cause rampant inflation, spiking prices to levels not seen before;

• Deficits will act as a drag on the overall economy;

It has been 50 years of hearing this — and NONE OF IT HAS PROVEN TRUE. So I am calling bullshit on this — and you should, too.

All of the players involved in the hysteria / deficit debate in D.C. — elected officials, staff, economists, the media, and even voters — all pretend to be very serious about this. NONE OF THESE EVENTS HAVE OCCURRED. It is maddening.

Maybe deficits start to matter at some point, but we have no idea what that point is, and we are no where close. Recall we were told a GDP to Debt Ratio over 90% was problematic? That nonsense was debunked. Not that we want to be like Japan, but their Public Debt to GDP ratio is 275%; in the U.S., it is 102%. None of the bad things about the Yen or private capital or borrowing costs have occurred. Japan can still borrow all it wants, and at very low rates, too.

The success of the anti-deficit crowd has been the following:

-a weak post-GFC recovery (with fears of Deflation) leading to lower growth for a decade. Compare this to the post-Covid economy that has been so strong, (and inflation a concern) — because of all deficit-financed fiscal stimulus of the CARES Act.

– Wealth inequality has gotten increasingly worse, as we have relied more on monetary stimulus, which seems to help the wealthy more than lower economic strata;

-It has made America less economically competitive with those nations that spend on their infrastructure;

-The opportunity to refinance America’s debt with cheap, long-term bonds — 30 or 50 year Treasuries — is lost because of faux deficit hawk. Perversely, they make the costs of government more expensive, not cheaper.

And deficit spending is always available to fund forever wars or tax cuts. It is almost as if those singing the anti-deficit gospel do not believe their own nonsense.

There is a rational middle between Zero deficits on one side and Modern Monetary Theorists on the other. We can fix our infrastructure, extend broadband to everyone throughout the country, even work to moderate climate change — and the economy will be just fine.

At the very least, can we at least raise the bar for the always-wrongs? Those who have been consistently wrong about the dangers of deficits for so long should no longer get the benefit of the doubt. When your core philosophy or a key belief of your ideology is proven wrong — and you refuse to admit error or change — then it is time for everyone else to call out your Bullshit.



UPDATE: January 13, 2022

Jonathan Chait calls the nonsense in New York Mag:

“When Republicans last held the presidency, they happily slashed taxes, jacked up spending, and enjoyed the proceeds of a roaring economy. When they lost the presidency, they decided the budget deficit posed an existential threat. They have been toggling between these two extreme positions for four decades now, and many people still haven’t quite picked up on the pattern.”



Stimulus, More Stimulus and Taxes (January 25, 2021)

Cost of Financing US Deficits Falls (December 18, 2020)

Can We Please Have an Honest Debate About Tax Policy? (October 2, 2017)

Why America Has a Two-Track Economy (September 27, 2018) Bloomberg

How Growth, Taxes & GFC Affects GDP (August 6, 2018)

The Economy of 2016 Weighs on Elections in 2018 and 2020 (June 15, 2017)

Deficit Chicken Hawks vs Ronald Reagan (July 13, 2010)

Politics & Investing


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