“Why”, asks MIT Sloan economist Simon Johnson, “do US fiscal conservatives care so little about government debt, relative to their counterparts in other countries?” His answer? In the US, unlike other countries, foreigners are eager to finance the government’s deficit spending.
In most countries, to be “fiscally conservative” means to worry a great deal about the budget deficit and debt levels – and to push these issues to the top of the policy agenda. ….
The United States is very different in this respect. There, leading politicians who choose to call themselves “fiscal conservatives” – such as Paul Ryan, … care more about cutting taxes, regardless of the effect on the federal deficit and total outstanding debt. Why do US fiscal conservatives care so little about government debt, relative to their counterparts in other countries? ….
[They ignore deficits because increased use of the US dollar around the world allows them.] Foreigners now hold roughly half of all US federal government debt, and they are willing to hold it when it yields a very low return in dollars (and even when the dollar depreciates). ….
And Americans have shifted greatly toward political philosophies – on the right and on the left – that regard public debt merely as a distraction. Or, as former vice president Dick Cheney put it, “Reagan taught us that deficits do not matter” ….
Ryan and members of the Tea Party wing of the Republican Party undoubtedly want to cut the size of the federal government …. But, in the near term, what they promise is primarily tax cuts ….
For example, Ryan supported George W. Bush’s spending spree. He also supports maintaining defense spending at or near its current level ….
The assumption here – unstated and highly questionable – is that the US will be able to sell an unlimited amount of government debt at low interest rates for the foreseeable future. There is no other country in the world where fiscal conservatives would want to be associated with such a high-stakes gamble.
Simon Johnson, “America’s Exceptional Fiscal Conservatism“, Project Syndicate, 23 August 2012.
I would add that Paul Ryan’s famously ‘conservative’ budget plan contains massive tax cuts, but also deficits that would increase the size of the federal debt by 6 trillion dollars over the next decade.
Simon Johnson, a former chief economist of the IMF, is co-author, with James Kwak, of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You (Pantheon, 2012).
Tags: Tea Party