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“Deficits don’t matter” is tautologically false. There is no “resource fairy” who can create goods & services out of this air for us to consume.
What is really meant by “deficits don’t matter” is that the low level of equilibrium interest rates means we can fund deficits at low long-term interest rates that make them easily-serviceable so long as the economy grows at reasonable rates.
The ‘Summers/Furman’ thesis that we should crank up fiscal spending to get the economy off the Zero-bound is self-contradictory. If it works by raising the equilibrium interest rate, then debt-servicing will, in fact, go pear-shaped.
The proper approach is to lock in long-term funding of the govt’s debt (a primary fail of the Mnuchin Treasury) and CUT TAXES.
At real long-term interest rates of ~-1%, any extra economic growth generated by the tax cuts will help produce LOWER debt/GDP over time - a veritable “free lunch.”
This recipe is not free to the Left however, because it would produce a more robust private sector and less all-powerful government. It’s costs then power.
Ask yourself: at negative real long-term interest rates, what is the economic rationale for taxation over borrowing?
Ask yourself: at negative real long-term interest rates, what is the economic rationale for taxation over borrowing?
