❝ It is a post-financial-crisis myth that austerity-minded conservative governments always favor fiscal prudence, while redistribution-oriented progressives view large deficits as the world’s biggest free lunch. This simplistic perspective, while perhaps containing a grain of truth, badly misses the true underlying political economy of deficits.
The fact is that whenever one party has firm control of government, it has a powerful incentive to borrow to finance its priorities, knowing that it won’t necessarily be the one to foot the bill. So expect US President-elect Donald Trump’s administration, conservative or not, to make aggressive use of budget deficits to fund its priorities for taxes and spending…
❝ One only has to recall recent US economic history…to see the absurdity of claims that Republicans always aim to balance the budget while Democrats always try to spend beyond the country’s means. Back in the 1980s, conservative hero Ronald Reagan was willing to tolerate enormous deficits to fund his ambitious tax-cutting plans, and he did so in an era when borrowing wasn’t cheap.
In the early 2000s, another Republican president, George W. Bush, essentially followed Reagan’s playbook, again slashing taxes and sending deficits soaring. In 2012, at the height of the standoff between the Republican-controlled Congress and Democratic President Barack Obama over deficits and the national debt, Republican presidential candidate Mitt Romney proffered an economic plan that featured eye-popping deficits to finance tax cuts and higher military spending.
❝ On the other side of spectrum, Democratic President Bill Clinton, during what most academic economists consider to have been an extremely successful presidency, actually put the government into surplus. Indeed, at the end of the 1990s, some researchers actually wondered how international markets would function if the US government gradually retired all of its debt. Bush’s subsequent tax cuts and unfunded wars ensured that this never became a problem.
❝ What matters is not only the level of debt, but also how it is managed…But anyone counting on interest rates staying low because conservative governments are averse to deficits needs a history lesson.
Alas, we now have a president who needs lessons in history, economics, political economy, basic physics, etc. plus self-help on addictive lying, narcissism and more. As unlikely to listen to Ken Rogoff as is his peer-group neo-con Republicans.