The Washington PostDemocracy Dies in Darkness

Opinion Is Democrats’ swing left sound policy or an economic pipe dream?

The National Debt Clock. (Timothy A. Clary/AFP/Getty Images)

As Democrats swing left, it becomes increasingly difficult to imagine what their triumph in the next election would mean for America. The presidential candidates endorse a variety of far-reaching proposals that, if adopted, would represent the largest expansion of government since Lyndon B. Johnson’s Great Society. The added spending, taxes or deficits could total hundreds of billions.

Are these sound economic policies or partisan pipe dreams?

Let’s review the main proposals. For context, remember the following: The U.S. economy (gross domestic product) is about $20 trillion, so a federal program costing $200 billion would be 1 percent of GDP. It would also be about 5 percent of the $4 trillion federal budget.

Here’s the rundown:

A guaranteed jobs program : Several candidates have proposed creating an employer of last resort to hire anyone who wanted a job but couldn’t find one. Economists at Bard College estimated that such a program would initially hire 15 million workers at $15 an hour; health insurance and retirement benefits would add 20 percent. The initial cost would be around $300 billion annually.

Medicare-for-all : Bernie Sanders proposed this, and it has become a proxy for almost any proposal that attains universal health-insurance coverage. Its cost is unclear (in 2017, there were an estimated 27 million uninsured), says a report from PolitiFact of the Poynter Institute. Sanders thinks replacing private insurance with Medicare could cut expenses; other experts disagree. There would be pressures to sweeten benefits. In a recent New York Times column, economist Paul Krugman wrote that “we’d need a lot more [tax] revenue” to implement Medicare-for-all.

“The Green New Deal” : Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Sen. Edward J. Markey (D-Mass.) propose putting the country on a war footing to purge U.S. greenhouse-gas emissions over a decade. The costs aren’t known, because the “new deal” manifesto contains no concrete proposals. However, it must be sweeping and expensive if the government is to subsidize “clean” energy and suppress fossil fuels.

Everything else : There are smaller proposals that, in other years, would seem large. Sen. Elizabeth Warren (D-Mass.) backs subsidies for child care, at an annual cost of $70 billion. Sanders would provide free tuition at state colleges and universities for most students. That’s perhaps $50 billion. Then there’s “infrastructure” spending — more billions — and a proposal to raise Social Security benefits.

Counting plausible costs from programs without official estimates, the total could easily equal the existing budget deficit ($779 billion in 2018). The actual amount could be more — or less. No one really knows.

How would Democrats pay for this? Some spending would be offset by taxes on the wealthy. Krugman doubts these would suffice. Adopting any major health proposals would probably require sizable increases in “payroll taxes and/or a value-added tax that hit the middle class,” he writes.

Of course, there is another choice: more deficit spending. Last week, I tried to educate myself on so-called modern money theory. Embraced by some Democrats, its central thesis seems to be that deficits are not nearly as dangerous as we’ve been led to believe. Here’s the case for that view, as best I can determine.

“The biggest mistake we make is thinking [of] the federal government as a household” that has to repay its debt, says Stephanie Kelton, an economist at Stony Brook University and an adviser in 2016 to Sanders.

The United States won’t default on its governmental debts, because it can always create more dollars — through the Federal Reserve — to honor U.S. Treasury bonds and bills, Kelton says. She rejects the argument that the Fed might generate inflation by flooding the economy with too much money. To prevent that, inflationary pressures can be offset through higher taxes and interest rates, just as occurs today.

The obsession with controlling government deficits hinders us in stabilizing the economy and promoting maximum employment, she contends. This may or may not be good economics, but it’s certainly expedient. No one likes to raise taxes and cut spending, and that may explain why benign neglect of deficits is now going mainstream.

Check out the latest issue of Foreign Affairs. “Washington should end its debt obsession,” urge Lawrence H. Summers and Jason Furman, top economic officials in the Clinton and Obama administrations. Interest rates are low. It’s better to borrow and spend on “education, health care, and infrastructure.”

What’s missing from this picture is old-fashioned prudence. True, the government doesn’t have to default on its debt in a legal sense. But if financial markets worry about the escalating debt, Treasury bonds will lose value. If the fall in confidence is great enough, it might trigger a panic, made worse by the reality that the dollar is the main international currency.

Our ever-ascending debt increases our vulnerability to a future crisis that we cannot see but almost certainly awaits us.

Read more from Robert Samuelson’s archive.

Read more:

The Post’s View: The U.S. is running up an unprecedented peacetime debt — and Washington just shrugs

Michael J. Boskin, John H. Cochrane, John F. Cogan, George P. Shultz and John B. Taylor: A debt crisis is on the horizon

Robert J. Samuelson: When will the ‘dreamers’ catch a break?

Robert E. Rubin: America’s debt has exploded. Why does no one care?

John Kasich: When will we stop ignoring that 21 trillion-pound gorilla sitting in plain sight?