No matter what 16 Nobel Prize-winning economists claimed in a recently signed statement, President Biden’s spending record isn’t productive and disinflationary. And nor is it investment. It’s unpaid government spending, and a lot of this spending should be described as cronyism; it’s subsidies and tax credits to big companies often to do things that these companies are going to do anyway. (Think the Inflation Reduction Act, and the CHIPS Act).
Biden’s spending isn’t only large and unwise, it also sometimes borders on being an attack on the rule of law. Recall his comment that “the Supreme Court blocked [my student-loan cancellations]. But that didn’t stop me.” These budgetary excesses are also likely a reason why inflation is stubbornly hard to defeat.
Even though the double standard is absurd, these Nobel-laureate economists imply correctly that President Trump will preside over larger fiscal deficits and the potential of being inflationary. This is so, in part, because Trump is committed, just like Biden, to not reform the main drivers of our future debt (i.e., Social Security and Medicare, which are responsible for 100 percent of unfunded obligations). On top of this irresponsible inaction, Trump might extend all of his tax cuts without much in the way of spending reductions. And, of course, all that additional debt with no plan to pay for it might impact the fight against inflation negatively.
That Trump will be weak on spending doesn’t require much imagination. Don’t forget that before the pandemic, while the economy was booming, interest rates were low, and wages were growing, Trump oversaw a large increase in the government’s budget deficits. And, of course, he then oversaw Covid emergency packages that were multiple times larger than they should have been.
Two successive spendaholic administrations (helped by Republican and Democratic spendaholic Congresses) have resulted in spending as a share of GDP now standing at 23.1 percent of GDP — notably higher than the 50-year average of 21.0 percent of GDP. This fiscal burden is also growing. The budget deficit will be $1.9 trillion in fiscal year 2024 and is projected to rise to $2.9 trillion by 2034. Government debt held by the public will grow from $27 trillion today to some $50 trillion — or 122.4 percent of GDP — by 2034!
All of this means that one of the most important things to look for during tonight’s debate will be the candidates’ positions on spending reforms and debt stabilization. No matter what other priorities you might have, they will either not matter much if we face a debt crisis, or they will be exacerbated.’
Unfortunately, I fear that spending questions won’t be on the menu tonight. I would be happy to be wrong.