Trump budget: Deficits don't matter anymore, until the day when, suddenly, they do

President Donald Trump’s new federal budget proposal unveiled Monday underscores the conviction of his budget director and acting White House chief of staff, Mick Mulvaney, that “nobody cares” anymore about chronically large deficits and a steadily growing national debt.

That’s what Mulvaney told congressional Republicans last month when they asked why Trump ignored mention of the deficit in his State of the Union address, according to ABC News. And that’s why Trump put out a plan that foresees annual deficits of $1 trillion or more through at least 2022.

So much red ink, unprecedented during a time of healthy economic growth will send the current national debt of $22 trillion surging higher — along with the annual interest payments approaching $500 billion.

Yet, as Mulvaney correctly observed, nobody — Republicans, Democrats or most voters — cares about all that red ink for a simple reason: There no longer is a compelling link between deficits and harm to the economy. The long-time argument from a generation ago that persistent deficits would trigger inflation, stunt economic growth and strangle government programs has not come to pass.

So emboldened congressional Republicans enacted a $1.5 trillion tax cut and boosted defense spending in 2017. Now Democrats in Congress are promoting expensive domestic programs by arguing that adding to the national debt is benign.

Even among economists, there is a growing belief that the U.S. government can handle its mounting debt indefinitely so long as interest rates remain low and investors around the world are lured to the safety of government bonds that finance all the debt.

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Think of it this way: You would have no reluctance to refinance your home mortgage indefinitely if you could get rock-bottom interest rates of 3 percent, which is the current yield for a 30-year U.S. Treasury bond.

This thinking is wildly at odds with economic orthodoxy in the 1970s through the 1990s, when deficits were blamed for every economic malady, from high inflation and recessions to weak productivity and private investment.

Ronald Reagan ran for president as a budget hawk in 1980 but his policies led to record deficits — but also a booming economy. His successor, George H. W. Bush, supported a tax hike to reduce the deficit but could not escape a weak economy that cost him re-election.

The economy boomed again under Bill Clinton, who produced a budget surplus, which was a beneficiary of the good times, not the cause. And deficits did not trigger the 2007-09 financial calamity blamed on high-risk housing investments. Rather, domestic stimulus programs under President Barack Obama that contributed to record deficits helped nurse the economy back to health.

A decade after all those huge deficits under Obama, and now Trump, what has happened to the U.S. economy? Unemployment is at a 50-year low, inflation is remarkably low and the economy will set a record for the longest expansion on record if growth continues into June.

This is strong evidence that deficits are not always evil and fiscal austerity is not always righteous policy. The question we should ask is whether the government is spending wisely and taxing fairly.

On the first issue, we know on a personal level that spending on a home improvement or child’s education is a sound investment, and spending on a lavish vacation we can’t afford is not. We should judge federal spending the same way. Is an increase in military spending needed for defense or a wasteful gift to contractors developing weapons we don’t need? Are we making smart investments in education and infrastructure?

On taxes, are we emphasizing fairness and ensuring the tax code encourages investments in jobs and new technology? Or is Congress awarding unjustified breaks to powerful lobbyists and rich donors?

These are ways to focus on how we spend and tax, rather than on the bottom line. Wise budget policy means narrowing deficits during good times, when tax revenues should be rising and social welfare spending should be ebbing, and not fixating on all the red ink during bad times. After all, the U.S. government has been in debt its entire existence save for one year — 1835 under Andrew Jackson — yet we have become the most powerful economy the world has ever seen.

That’s not to say we can pile up debt recklessly and indefinitely without paying a steep price. Eventually, investors would demand higher interest rates or shun government bonds, creating a financial crisis.

For now, however, let’s insist that our elected representatives spend and tax more wisely, and then, whatever the deficit turns out to be, nobody will care.

Owen Ullmann, a former economics reporter and senior editor of USA TODAY, is executive editor of The International Economy magazine.

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This article originally appeared on USA TODAY: Trump budget: Deficits don't matter anymore, until the day when, suddenly, they do