And while the large deficits may have fueled fears about inflation – since many dollars chased few goods – price gains have been too low to be comforted for years. Add to that the emergency needs caused by the pandemic, and even the Fed leader, who has long warned of the country’s debt burden, said this is a reasonable time to spend money.
“As a general rule, it is important to follow a sustainable fiscal path,” Fed Chairman Jerome H. Powell, a Republican, told a news conference last month. “In my way of thinking and many others, the time to focus on that is when the economy is strong and unemployment is low, and taxes are, you know, coming in.”
The political rethinking of the deficit – especially in times of economic weakness – is a radical change from previous eras. In the 1990s, President Bill Clinton highlighted his success in reducing the deficit and creating a budget surplus as a political achievement for Democrats. Concerns about excessive federal spending and national debt also helped fuel the Tea Party’s rise in the late 2000s, giving rise to a new generation of Republicans who managed to set austere spending limits that continued to plague lawmakers. But after 2014, Republicans joined Democrats to waive those limits, and a 2019 bipartisan and bicameral deal secures its expiration this year.
But while some economists and politicians are more comfortable with high levels of public debt, others warn that they may create vulnerabilities in the future. If interest rates rise, it may cost the government more to maintain those payments each year – leaving less for other types of spending or requiring Congress to accumulate ever-increasing debt to maintain them.
Republicans often worry aloud about the deficit while enacting policies that will have the effect of expanding it. For example, the tax cuts that released Congress at the start of the Trump administration were expected to increase the deficit by $ 1.9 trillion in the decade through 2028, based on an analysis by the Congressional Budget Office.
But the party generally invokes fiscal responsibility to block larger spending programs.
“Republicans are happy to increase the deficit to cut taxes, but they are not happy to increase the deficit to spend more,” said Michael Strain, director of economic policy studies at the American Enterprise Institute.