As Some Deficit Hawks Flip Dove, the New Politics of Debt Are on Show

And while large deficits may have fueled inflation fears – with too many dollars chasing too little goods – price gains have been too low for years to comfort them. On top of that, the emergency was triggered by the pandemic, and even the Fed leader, who long warned of the nation’s debt burden, said it was an appropriate time to spend.

“As a rule, it is important to be on a sustainable fiscal path,” said Fed chairman Jerome H. Powell, a Republican, at a news conference last month. “In my mind and many others, when the economy is strong and unemployment is low and taxes, you know, are pouring in, it’s time to focus.”

The political rethinking of the deficit – especially in times of economic weakness – is a clear change compared to earlier epochs. In the 1990s, President Bill Clinton highlighted his success in reducing the deficit and creating a budget surplus as a political achievement for Democrats. Concerns about excessive federal spending and national debt also helped the Tea Party rise in the late 2000s, leading to a new generation of Republicans who managed to put in place strict spending caps that continued to weigh on lawmakers. But after 2014, the Republicans, along with the Democrats, waived those caps, and a non-partisan, bicameral agreement from 2019 ensures that they expire this year.

But even if some economists and politicians are more comfortable with the high national debt, others warn that they could create vulnerabilities later. If interest rates rise, it could cost the government more to keep up with these payments each year – either less for other types of expenses, or Congress will have to pile on an ever-increasing burden of debt to keep up.

Republicans have often raised concerns about the deficit while adopting policies that will widen the deficit. For example, tax cuts that Congress approved earlier in the Trump administration were expected to increase the deficit by $ 1.9 trillion in the decade through 2028, based on analysis by the Congressional Budget Office.

However, the party has generally invoked fiscal responsibility to block major spending programs.

“Republicans are happy to increase the deficit to lower taxes, but not happy to increase the deficit to spend more,” said Michael Strain, director of economic policy studies at the American Enterprise Institute.

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