Passengers wearing face masks wait for their bus in front of a national debt display.(Bill Clark / CQ Roll Call via AP Images)
Democrats just can’t help themselves. On the eve of Joe Biden’s acceptance speech, a longtime confidant of the former vice president, Ted Kaufman, poured cold water on the idea that a future Biden administration would rid itself of the deficit fetishism that has plagued the Democratic Party since the days of Bill Clinton. “When we get in, the pantry is going to be bare,” said Kaufman.
That’s bunk.
The Great Depression should have taught us that without government intervention, capitalist economies are prone to lengthy periods of unemployment. Apparently, that lesson needs to be relearned by some. Today, we again have Great Depression levels of unemployment, coupled with nearly 30 million Americans going hungry because of the government’s withdrawal of crucial support programs. This is all occurring against the backdrop of a pandemic that shows little sign of abating. The idea that these crucial objectives should be held hostage to deficit hysteria is a grotesque abdication of responsible government.
It was nice to see Biden, early in his nomination acceptance speech, cite Franklin Delano Roosevelt, a figure whose New Deal legacy “New Democrats” have ignored over the past few elections. We need more FDR, less Bill Clinton. To paraphrase one of FDR’s many great aphorisms, today Democrats have nothing to fear but fear of deficits themselves. Embrace of a faulty paradigm will short-circuit the Democrats’ agenda before you can blink. Even the GOP has recognized that.
Kaufman’s gaffe was walked back by Biden spokesman Andrew Bates, but with an incoherence that reflects badly on the Democratic nominee. While reaffirming “stimulus spending in the short term to repair the historic damage Donald Trump has done to our economy and to build back better,” Bates followed that up with the old canard that “the ongoing costs of his agenda [would be] paid for by having the wealthiest taxpayers and corporations pay their fair share for the future of our country.”
Short-term or long-term, the expenditures must be undertaken with an eye only to the results of these actions on the economy and not to any fixed time frame or any arbitrary a priori assumption about what is “financially sound” or unsound. The likelihood is that we shall have to embrace large deficits for many years to come, given the huge loss of economic output and the sheer scale of the incoming challenges facing a future Biden administration: Covid-19, health care reform, mass unemployment, rotting public infrastructure, and climate change, to cite just the obvious ones.
Even the former chief economist of the International Monetary Fund, Olivier Blanchard, has concluded: “It’s clear that we can probably go where we are going, which is debt ratios above 100 percent in many countries. And that’s not the end of the world.”
It’s certainly not. Contrary to long discredited myths, huge increases in our deficits do not “crowd out” private investment. Increases in the federal deficit have decreased, not increased, interest rates, because deficit spending leads to a net injection of dollars into the banking system (and big deficits imply big injections). If anything, with rates at multi-decade lows, the markets are crying for government spending to pick up the baton on growth from fearful consumers and businesses, who are seeking to ward off catastrophe.
Likewise, the Democratic agenda must not be held hostage to the idea that it cannot move forward unless wealthy elites are taxed more heavily. Rampant inequality is bad for democracy, because it further tilts the power into the hands of the elites who, historically, have tended to prioritize their own interests over the general well-being. But that is separate from the issue of “funding” our deficits.
Faced with radical uncertainty, virtually all US consumers are spending less and saving more. So long as they can’t know when the next job offer—or layoff—will come, that is highly unlikely to change. Likewise, businesses will not invest while the future remains so unclear.
That leaves the government and, yes, years of budget deficits if that’s what it takes to restore economic growth.
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The problem with our deficits has never been their size but where the benefits have been distributed: Under Trump, these have disproportionately benefited corporations and high-income earners, while providing little relief to most Americans, who have been enduring relative declines in their living standards for decades, even before the economy experienced the body blow of a pandemic.
Everybody seems to get this now. Even The New York Times no longer trumpets the virtues of fiscal responsibility (as the “Gray Lady” once so often did) but now recognizes it for the fairy tale that it is. Everybody, that is, except perhaps for Joe Biden and the small cohort of deficit hawks advising him. It’s time to turn these hawks into dodos and get on with fixing the big problems facing the country.
Marshall AuerbackMarshall Auerback is a market commentator, a research associate for the Levy Institute at Bard College, and a regular contributor to the Independent Media Institute.