I wish I knew how they had arrived at their conclusions. At RealClearPolicy John Merrifield and Barry Poulson proclaim that the U. S. has run out of “fiscal space” and must balance its budget:
Keynesians like Paul Krugman argue that the United States has ample fiscal space and should pursue expansionary fiscal policies to stimulate economic growth. But our research reveals that we can no longer muddle along as we have for half a century, incurring deficits and accumulating debt. Expansionary fiscal policies, such as those pursued by the Obama administration, would trigger deficits and debt levels that would expose the country to default and loss of access to international capital markets.
In other words, our nation has no fiscal space. Our debt burdens are already beyond tolerance levels. Prudent fiscal rules and fiscal reforms must be enacted immediately and maintained for the foreseeable future to restore a sustainable fiscal policy. The era of Keynesian stimulus is over; we must return to our country’s historical tradition of enacting balanced budgets.
I’m skeptical of both of those positions. Unlike Dr. Krugman I don’t think that the federal government should run large deficits during expansions but unlike the authors of the article I think that the federal government can and should run at a small deficit all of the time. How small? If inflation is 2% we could probably afford a $100 billion deficit. In other words I think the present deficit of $400 billion is risky.
Further, I think that running a surplus—something we must do if we’re going to have a balanced budget on average—is a disastrously bad idea.
Note to op-ed writers: show your work. Don’t expect your readers to take your conclusions on faith or track down your previous writings to figure out what the heck you mean.
Running surpluses toward the end of the Clinton Administration created a shortage of Treasuries for the repo markets. They compensated by switching to and mass producing mortgage-backed securities.
Oh gosh wow gee. Sensible people would have run balanced budgets for the past 20 years and we’d all be happy. Nobody knows what went wrong, so we have to dump all the blame on the Obama administration, and trust that following administrations will somehow give us the marvelous budget balancing practiced in Greece and Italy and Spain. U-huh.
Well …. I dislike disagreeing, but this sort of scream makes a point of sort. The USA probably shouldn’t run much in the way of deficits for a while. We ought to whack back social security a bit — say around 5 to 10 percent. Ditto medicare and Medicaid and food stamps. Ditto the Defense Department. This will be hard on folks relying on Medicare and Medicaid and food stamps and social security, so in the interest of fairness we’ll have to increase taxes on the wealthy by a comparable amount. Because all Americans love Fairness, right, and nobody loves it more than people who moan and groan and piss because the US doesn’t have balanced budgets.
So let’s have ten years of Fairness, and run nice big budget surpluses and pay off all those unimaginable debts, and every single day, the secretary of the treasury should have a press conference to announce what the current deficit is and how soon we’re going to pay it off, and announce in a loud stentorian voice that yes all this austerity hurts but it’s what we as a people are doing to be Fair, and all Americans when they get together at ball games and movies and orgies, etc., should be sure to tell each other how much they love being Fair. Maybe newspapers and web sites and magazines should run stories on how previous disadvantaged American multimillionaires are finally being treated Fairly and what they are doing, now that America is giving them Equal Treatment. Let’s have lots of insightful interviews with low income people who are struggling a bit to make ends meet but who are just totally thrilled to know America’s wealthy classes are finally being treated Fairly.
Just imagine how happy we’ll be!
And a significant bonus, I guarantee this will cut down the number of people attempting to immigrate to the US, legitimately or otherwise. Isn’t this the most wonderful political idea ever conceived?
Okay … maybe the spirit of sarcasm got a bit strong there. But I’m not sure what one can do when contemplating American politics anymore except stand in stunned silence or resort to hyperbole.
Sorry about that.
I’ve never understood the contradictory thinking of debt-phobes. They claim to be supremely concerned with the will of markets, yet ignore that U.S. debt is (and has been for a very long time) in high demand. The only real concern should be the effect of deficits on inflation, and with the rest of the planet net saving in our currency that isn’t currently a problem.
I’m not particularly concerned about inflation right now. I think the greater risk is hyperinflation which, contrary to the way economists tend to treat it, is not a species of inflation but a different phenomenon altogether. Hyperinflation is a sudden loss of confidence in the currency and cannot be headed off by noticing a gradual increase in inflation.
As long as a market basket of countries including China, Japan, and Germany want to hold lots of currency, they are in effect importing inflation and exporting deflation. That’s our present situation. But it could change suddenly and catastrophically. It’s a risk.
The estimated deficit for 2016 is actually $587 B, which is 15% of the $3.999 T budget. The deficit is equal to total defense spending. The accumulated debt is equal to GDP, and growing faster than GDP.
The debt is manageable only because interest rates are at historically low levels. Presently, interest on the debt is about $266 B/yr and is about 6.5% of the federal budget. It is projected to rise to $730 B/yr by 2025, when it will comprise 12% of the budget. See,
https://www.thebalance.com/interest-on-the-national-debt-4119024
Therein lies the problem. The debt load is an ever increasing percentage of the budget, and it will gradually squeeze out all sorts of necessary spending.
We were told interest would crowd out other spending within two years back in 1980. Thirty-seven years and $19 trillion later the narrative remains unchanged.
Hyperinflation is highly unlikely because the money supply is miniscule compared to the credit supply, and dollars created from credit are indistinguishable from non-credit dollars.
Usually, this leads to asset inflation, and asset inflation leads to credit supply inflation. At some point, a bubble is formed, and then, it is burst before hyperinflation can occur.
The federal deficit spending and the national debt can be sustained for a lot longer than most people realize, but it is not recommended to find the upper limits.
Allowing Treasuries to be held by foreign companies results in a trade imbalance, and this allows these countries to avoid buying US goods and services. There are opportunities for foreign countries to trade in dollars, but they are limited.
This could eventually lead to hyperinflation, but when that day arrives, nobody will earn enough hyperinflated money to buy anything anyway.