Harvard Economics Professor and former Treasury Secretary Larry Summers said Tuesday during an event staged by the Center for American Progress, a Democratic Party-aligned think tank, that the U.S. budget deficit, which came in at $1.7 trillion in 2023, “is probably a more serious problem than it ever has before.”
Really? We have the fastest growing economy in the developed world—up 4.9 percent annually in the third quarter. But the new Republican House Speaker wants to slash spending in the name of cutting the deficit, which is an attempt to cut back on President Biden’s New, New Deal programs that will modernize the American economy by “paying it forward” in the words of Senator Elizabeth Warren for future generations.
So, this is not the time to worry about the budget deficit, though it’s the highest since World War Two.
Professor Summers had been very good at convincing Presidents Clinton and Obama at reducing budget deficits. So much so that President Clinton had four consecutive years of budget surpluses from 1996-2000. That worked when the Soviet Union broke up ending the Cold War and the US was able to make huge cuts in military spending.
But it’s not good advice today as it wasn’t a good idea to limit FDR’s New Deal spending when our government had to re-arm to win World War II. There are two regional wars today, and we’ve had to spend $trillions just to win the COVID world war.
The massive debt accumulated during WWII was paid down quickly when the technological advances spurred by those wartime investments brought soaring economic growth and post-war prosperity.
The same will happen today because the $trillions in debt that is modernizing the US economy, the educational system, and our social safety net is investing in future growth.
We are already seeing the results with soaring Q3 GDP growth and a historically low unemployment rate, but only if the debt is paid down with growth rather than slashing spending prematurely at the time it is most needed.
The current budget battle is over what to spend. Republicans want to raise the retirement age for Social Security and Medicare and cut benefits, as well as slash spending on money already approved to expand IRS operations, which is meant to collect long overdue taxes, thus improving the deficit.
It’s the Repubs backdoor way of cutting federal spending by reducing tax revenues, thus protecting their wealthy donors who have thrived with all manner of tax shelters.
Their initial proposal is to pay for Biden’s war funding by taking $14 billion away from the IRS budget, which budget analysts say will actually cost $40 billion because of lost tax revenues from the reduction of tax collections.
And what about aiding the democracies fighting two wars and winning the climate change battle, just as we needed to win WWII to survive as a democracy?
Our government must also worry about the Fed. The debate is still when the Fed will begin to lower their short-term rates in time to prevent a recession.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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