Steve Benen says not.
I realize the political establishment is uncomfortable with large deficits and a massive debt — though oddly the discomfort only seems to emerge when there’s a Democratic president — but it’s worth remembering a few truths from time to time.
…when there’s a global economic crash, and the government needs to invest to rescue the economy, large deficits are good, not bad, especially when borrowing is cheap and easy. Had the president focused on reducing the $1.3 trillion deficit he inherited from Bush/Cheney, instead of job creation and economic growth, the recession would have intensified, and yet, too many reports simply accept it as a given that higher deficits are worthy of condemnation.
…economic growth and job creation are the problem, Obama’s making things better, and with negative yields on Treasuries, we should be borrowing more, investing more, and leaving deficit reduction for a later, healthier time.
nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.
Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.
So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.
So why are we talking about the debt instead of the economy? Krugman again.
Ominous warnings about the danger of excessive deficits became a staple of political posturing; they were used by people who considered themselves serious to proclaim their seriousness. … Obama himself got into this game; his first State of the Union address, in early 2010, proposed spending cuts rather than new stimulus. And by 2011 blood-curdling warnings of disaster unless we dealt with deficits immediately (as opposed to taking longer-term measures that wouldn’t depress the economy further) were heard across the land.
…the market itself doesn’t seem to agree; if anything, it’s saying thatAmerica should borrow more, since at the moment U.S. borrowing costs are very low. In fact, adjusted for inflation, they’re actually negative, so that investors are in effect paying the U.S.government a fee to keep their wealth safe. Oh, and these are long-term interest rates, so the market isn’t just saying that things are OK now; it’s saying that investors don’t see any major problems for years to come.
Never mind, say the deficit hawks, borrowing costs will shoot up soon if we don’t slash spending right now. This amounts to saying that the market is wrong—which is something you’re allowed to do. But it’s strange, to say the least, to base your demands on the claim that policy must be changed to satisfy the market, then dismiss the clear evidence that the market itself doesn’t share your concerns.
And finally Ezra Klein from way back in 2010:
Deficit fear-mongering was a core part of the Democrats’ strategy against Bush, too. It just didn’t work very well. The reason is that the public didn’t care very much about deficits. Why? Well, they weren’t very worried about the economy. But now they’re terrified about the economy. And deficits — which signify irresponsible money management to voters who think of things in terms of household finances rather than Keynesian counter-cyclical spending — are evidence, to them, that the government isn’t handling the economy correctly. The fact that deficits rise sharply during recessions simply confirms to voters that there’s a connection.
Republicans are taking advantage of this misguided analysis, just as Democrats would happily have latched onto the sentiment if it had presented itself in the Bush years. But the driver here isn’t Republican messaging but, on the one hand, anger over the economy, and on the other hand, the fact that the troubled economy needed a vast expansion in the short-term deficit. A bad economy isn’t popular and big deficits aren’t popular, and combining the two is seriously unpopular, even if it’s necessary.
Both parties have fearmongered about the national deficit as a vote-grabbing strategy over the last decade, and that fear has entered the national consciousness. They’ve painted themselves into a corner and now have to act as if the believe thir own crap. We’d be far better placed, as Stiglitz advocates, in borrowing and spending more, in order to regenerate the national infrastructure and create jobs, thus stimulating the economy. The time to pay back debt that no-one is asking you to pay back is when you’re making money.