“Even under current conditions, I think we can afford to increase federal spending or cut taxes to stimulate the economy if there’s a downturn,” said Janet Yellen, the former Fed chief who is the incoming president of the American Economic Association. “Chronic low interest rates create additional fiscal space.”
Yellen’s remarks are part of a growing chorus of prominent economists who are building the intellectual case for the United States to take on a bit more debt. They are not saying that politicians have a blank check to spend more or that higher debt doesn’t have any negative consequences. The money still has to be paid back at some point — with interest.
But the consensus view is shifting among economists from a belief the debt harms the economy to a belief that responsible borrowing is warranted.