Almost a decade has passed since I published a column, “Myths of Austerity,” warning that deficit alarmism would delay recovery from the Great Recession — which it did. Unfortunately, that kind of alarmism seems to be making a comeback.
You can see that comeback in the gradually increasing number of news analyses emphasizing how much debt we’ll run up dealing with the COVID-19 crisis. You can also see it in the rhetoric of politicians like Mitch McConnell, the Senate majority leader, who is blocking aid to beleaguered state and local governments because, he says, it would cost too much.
So this seems like a good time to emphasize two key facts. One is economic: While we will run very big budget deficits over the next couple of years, they will do little if any harm. The other is that whatever they may say, very few prominent figures in politics or the media are genuine deficit hawks who are actually worried about the consequences of rising government debt. What we mainly have, instead, are deficit peacocks and deficit vultures.
The term “deficit peacocks” was coined by the Center for American Progress for people who preen and posture about fighting deficits without offering realistic policy proposals. I’d broaden the term to include what I used to call Very Serious People — those who inveigh against the evils of debt not because they’ve done a careful analysis but because they imagine that it makes them sound earnest and tough-minded.
The glory days of deficit peacocks were the early teens, an era in which people like Alan Simpson and Erskine Bowles were lionized by the news media. As Vox’s Ezra Klein noted at the time, for some reason “the usual rules of reportorial neutrality don’t apply when it comes to the deficit”; the wisdom and virtue of deficit warriors were simply taken for granted.
We haven’t heard much from the deficit peacocks in recent years, even though the budget deficit, which declined sharply during the Obama years, soared again under Donald Trump. Funny how that works. But you can be sure they’ll be back in force if Joe Biden wins this November.
What about deficit vultures? That’s the term I’ve been using for politicians who exploit real or imagined fiscal distress to feed a reactionary policy agenda.
After the last crisis, conservatives used deficits as an excuse to cut social programs — for example, a number of states made it much harder to collect unemployment benefits. This time around, McConnell and Trump are trying to exploit deficit fears to force state governments to downsize, undermine (and possibly privatize) the post office and more.
It goes almost without saying that the deficit vultures are hypocrites. After all, Trump and McConnell rammed through a $2 trillion tax cut in 2017, with no apparent concern about the effects on the deficit. Nor have I heard any Republican complaints about Trump’s huge bailouts for farmers, whose distress is largely the result of his own policies.
An aside: Far too much reporting on these issues involves what economist Dean Baker calls mind-reading. That is, news analyses include statements along the lines of “Republicans are concerned about rising deficits,” when in fact all we know is that Republicans claim to be concerned about rising deficits — and there are very good reasons to be skeptical about that claim. After all, have modern Republicans ever seen deficits as a constraint on their own tax-cutting agenda? Even once?
Still, hypocrisy aside, should we be worried about the effects of COVID-19 on debt? No.
It’s true that we’re headed for some eye-popping numbers. Last week the Congressional Budget Office released preliminary economic and budget projections for the next two years, which were both shocking and unsurprising.
That is, the numbers were grim but more or less in line with what many independent economists have been predicting. In particular, the budget office expects the COVID-19 crisis to drive the unemployment rate to 16% in a few months, which might even be on the low side.
Soaring unemployment will cause federal revenues to plunge and also lead to a surge in spending on safety-net programs like unemployment insurance, Medicaid and food stamps. Add in the large relief packages Congress has passed, and the budget office projects a deficit that will temporarily rise to levels we haven’t seen since World War II, and it expects federal debt to rise to 108% from 79% of GDP, which sounds scary.
But the government will be able to borrow that money at incredibly low interest rates. In fact, real interest rates — rates on government bonds protected against inflation — are negative. So the burden of the additional debt as measured by the rise in federal interest payments will be negligible. And no, we don’t have to worry about paying off the debt; we never will, and that’s OK.
The bottom line is that right now, the only thing we have to fear from deficits is deficit fear itself. Pay no attention to the peacocks and vultures: In this time of pandemic, we can and should spend whatever it takes to limit the damage.
Paul Krugman, Ph.D., winner of the Nobel Memorial Prize in Economic Science, is an Op-Ed columnist for The New York Times.