Mar 3, 2019

Debt is suddenly hot

Illustration of hat with debt

Illustration: Aïda Amer/Axios

The truism that debt and deficits matter is fading away among policy elites.

Driving the news: The chorus is telling us don't worry, be happy: The Wall Street Journal: "Worry About Debt? Not So Fast, Some Economists Say" ... Foreign Affairs: "Who’s Afraid of Budget Deficits?" ... NY Times: "How America Learned to Stop Worrying and Love Deficits and Debt."

  • The NY Times' Neil Irwin captures the debtgeist: "Economic orthodoxy that ruled for decades held that fiscal responsibility was inherently good and the national debt a leviathan to fear. Now the intellectual and political currents are flowing — gushing, really — in the opposite direction."

That's after the national debt passed $22 trillion, the most ever — $2 trillion of that while Trump was in office.

  • And despite a strong economy, the deficit last year hit a six-year high.

This is a rare zone of agreement for left, right and center:

  • Rep. Alexandria Ocasio-Cortez has indicated openness to "modern monetary theory," the idea that deficits don't matter for countries that are running below their economic potential.
  • Trump didn't once mention the debt or budget deficits in this year's State of the Union address — nor did he mention it last year.
  • Warren Buffett, the third richest man in the world (after Bezos and Gates), said in his most recent letter to investors: "Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold" over the past 77 years.

Why it doesn't matter, from Axios Markets editor Dion Rabouin: inflation, which over the past decade or so has been a non-factor, even after back-to-back years of above-trend growth and government spending binges.

  • Economists have argued about the reasons, pointing at everything from the internet to the lack of unions to globalization to the way companies have invested their profits. But the end result remains the same.

The two arguments:

Debt matters ... Axios Future editor Steve LeVine warns against a "glib new gospel."

  • Steve emails: "If debt really doesn't matter, you should be able to print any amount of money without impact. But none of the glib economists will go that far. That's why I call them glib. Because they are suggesting that we go out and spend more when all they really can say is, well, inflation and interest rates are low now."
  • And Fed chairman Jay Powell said in Senate testimony last week: "[I]t is widely agreed that federal government debt is on an unsustainable path. As a nation, addressing these pressing issues could contribute greatly to the longer-run health and vitality of the U.S. economy."

Debt doesn't matter ... Axios chief financial correspondent Felix Salmon: "There is no evidence from 240 years of American history that the level of the national debt has ever really mattered."

  • "The U.S. prints its own currency and can borrow as much as it likes, increasingly from domestic investors. Per Buffett, deficit hawks have preached doom for decades. They have never been proven correct."
Data: FactSet: Chart: Lazaro Gamio/Axios
Data: FactSet: Chart: Lazaro Gamio/Axios

1 fun thing: A man named Ian Hammond proposes improving American's balance sheet by selling Montana to Canada. The price? Just $1 trillion.

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