Deficit Hawks Flying Once Again
The 'Responsible Budget' People and Their Media Acolytes
The Deficit Hawks have taken wing once again.
On October 7, the leading Washington Deficit Hawk think-tank, the Committee for a Responsible Federal Budget (CRFB), released a report, "The Fiscal Impact of the Harris and Trump Campaign Plans," which the mainstream media ate up. The New York Times, Washington Post, Wall Street Journal and public radio's Marketplace program all responded on cue with prominently placed articles. Neither the CRFB report nor the mainstream media coverage, however, break any new ground intellectually. Their intellectual framing continues to suffer from the flaws which, using the perspective of Modern Monetary Theory (MMT), we have exposed many times here at Political Economy Watch. Let's take a closer look.
The CRFB Report on Harris and Trump Budget Plans
The CRFB knows how to pack predictions of gloom and doom into the first paragraph of its report:
"The next President will face significant fiscal challenges upon taking office, including record debt levels, large structural deficits, surging interest payments, and the looming insolvency of critical trust fund programs. Our large and growing national debt threatens to slow economic growth, boost interest rates and payments, weaken national security, constrain policy choices, and increase the risk of an eventual fiscal crisis."
But does the balance of the report bear out these ill tidings? In my judgment, it does not.
The report contains no further discussion of how a larger federal deficit would "weaken national security," "slow economic growth," or what an increasingly likely "fiscal crisis" would actually look like. These calamities are merely asserted.
The report presents no argument as to how and why a larger federal deficit would raise interest rates (as distinct from interest payments). It ignores the fact that interest rates are primarily set by the Federal Reserve. If the Fed raises the base interest rate from near zero to over five percent, then all other interest rates will go up, whether or not the federal deficit goes up or down. The report assumes that there is a fixed amount of loanable funds in the economy for which the federal government competes.
The report ignores the fact that the "looming insolvency of critical trust fund programs" -- Social Security and Medicare -- is largely a consequence of the funding restrictions placed on these program by Congress and hence modifiable by Congress.
Should you be sufficiently masochistic, you can read the CRFB's report for yourself. Here we'll restrict ourselves to noting that in comparing Kamala Harris and Donald Trump's budget plans, Harris comes out more "fiscally conservative" than Trump.1 However, CRFB views both candidates' as fiscally "unsustainable":
"Even in the best case scenario, neither candidate’s plan would be sufficient to put debt on a downward path and point America toward a more secure and sustainable fiscal future. Simply not adding more to the debt is no longer sufficient. Going forward, policymakers should make significant deficit reduction a major focus and priority, especially the Commander in Chief."
CRFB Report's Underpinning: The Household Budget Analogy
In general, the CRFB report relies for its impact on widespread public acceptance of what MMT advocates have called the Household Budget Analogy (HBA). The HBA asserts that the U.S. federal government's spending is subject to the same constraints faced by an individual household -- no doubt, a "hard-working American family" -- or firm. Before it can spend, the household must amass funds by earning (sale of its labor-power) or borrowing. The currency which the household will eventually spend originates some place outside the household; the household is merely a currency user. Too much borrowing from outside the household puts it at risk of bankruptcy.
MMT, in contrast, argues that the U.S. federal government's spending and budget are not analogous to those of individual households or firms. The federal government is the ultimate creator of the currency. It creates money by spending it into existence (and later "uncreates" that money by taxing it back). It fundamentally does not need to amass funds from some place outside the government before it can spend. Indeed, it's the other way around. Until the federal government -- the currency issuer -- spends dollars into the non-government sector of the economy, households and firms in that non-government sector do not have the dollars with which to pay their taxes.
Setting aside self-imposed hassles like the federal debt ceiling law, the U.S. federal government can never face bankruptcy in the way a household or firm can. Because it is the currency issuer, the federal government can always meet all payments of interest or principal on its debt instruments. For that same reason, it can always "find the money" for purchases of goods and services in pursuit of the public purpose. Consequently, from the MMT perspective, the size of the federal deficit is not something that the executive and legislative branches of the federal government should target as a policy variable.
How the Media Spreads the Message
The CRFB issues multiple reports each year, but it relies upon a platoon of journalists in various media outlets to amplify its message of panic about ballooning deficits and debt. Let's take a look at a few of them.
Steady readers of Political Economy Watch will not be surprised to learn that the New York Times's coverage of the latest CRFB report was penned by Alan Rappeport.2 While Rappeport refrains from echoing some of the CRFB's most dire predictions of woe, he nonetheless does not deviate from the standard Deficit Hawk narrative. He cites "[b]udget analysts and fiscal hawks" as predicting that one consequence of increases in the national debt would be "slower economic growth," but he does not attempt to explain the causal linkage between those two phenomena.
Over at the Washington Post, it appears that the Deficit Hawk beat has lately been reassigned from Jeff Stein to Jacob Bogage. On October 7 he penned an article, "Trump would add twice as much to national debt as Harris, study finds" in which he puts the emphasis on the extent to which Trump's budget plans would increase deficit spending much more than Harris's.
"Former president Donald Trump’s campaign proposals would add more than twice as much to the national debt as Vice President Kamala Harris’s would, according to research released Monday — though both candidates’ policies would lead to trillions of dollars in new borrowing if implemented."
He dutifully quotes the head of the CRFB:
"“Despite the fact that our fiscal situation is really unhealthy, we have two candidates whose proposals, if looked at comprehensively, would make the situation worse rather than better, with a noticeable distinction that former president Trump would make it significantly worse,” CRFB President Maya MacGuineas told The Washington Post."
But Bogage goes on to quote other "fiscal experts" who stoke fears about federal deficits:
"“If we don’t take this seriously, it sort of becomes like bankruptcy, which happens very slowly and then suddenly, all at once,” said Jason Fichtner, chief economist at the Bipartisan Policy Center think tank. “What that means for individuals, households, consumers, investors, borrowers, is that they will see the value of the dollar decline. They’ll probably see interest rates go up and they will see inflation go up, as well. Does that mean an apocalypse and there’s nothing to buy anymore? No. It means things become more expensive and we have a hard time funding the things you want to pay for now, like roads, bridges and education.”"
Want to subject yourself to audio reports echoing the Deficit Hawks? You can listen to an October 11 piece by Sabri Ben-Achour for Marketplace on public radio.
And if you can get behind the Wall Street Journal's paywall (I cannot), you can tell us what the WSJ had to say about the CRFB report and what Bush-43 henchman Karl Rove has to say about the national debt.
The Bottom Line
All these articles will start from the premise that the U.S. federal government is financially constrained as if it were an ordinary, currency-using household. The reality is that while the federal government may be constrained with respect to the real resources it can mobilize in pursuit of the public purpose, it is not financially constrained. It can always "find the money"; hence, we should never submit to deficit panics. Questions? Pose them in the Comments section below.
"While it’s plausible that the Harris plan could be roughly budget neutral, it is also plausible that her plan could add $8.10 trillion to the debt [by the end of fiscal year 2035]. The Trump plan could add $1.45 trillion to the debt but could also add as much as $15.15 trillion."
See, e.g., Recycling panic over national debt. Rappeport's latest article appeared in the print edition on October 9, 2024, p. B3.