THE FEDERAL budget deficit reached $310 billion in the first four months of fiscal 2019, which began in October. That’s a 40 percent increase over the same period a year earlier (adjusting for technicalities that distorted the previous figures). The United States is on course for a $900 billion deficit this year, just as the Congressional Budget Office forecast — and the causes are plain to see. President Trump and a Republican Congress enacted massive tax cuts in December 2017 while imposing essentially zero restraint on federal spending. Barring policy change, the CBO projects deficits will begin exceeding $1 trillion per year in 2022 and will average 4.4 percent of national output for a decade thereafter, in contrast to an average of 2.9 percent over the past half-century .
Not to worry, the Trump administration responds. “Growth solves the problem,” White House economic adviser Larry Kudlow said, true to supply-side doctrine that holds that tax cuts pay for themselves by stimulating more output. In this respect, Mr. Kudlow is being bipartisan, sort of. Insouciance about deficits is in fashion among Democrats, too, including some who have embraced a dubious new concept known as “modern monetary theory,” a sort of left-wing analog to supply-side that holds, essentially, that the United States can engage in unlimited deficit spending financed by the Federal Reserve. With both political parties sending such blasé messages, and no signs — yet — of harm to the broader economy, it’s little wonder that only 48 percent of the public considers deficit reduction “a top priority,” according to a Pew Research Center poll taken in January.
For our part, we don’t think the deficit per se is likely to cause short-term economic harm, or that there’s a case for immediately adopting a zero-deficit budget. And we don’t know anyone who does think those things — notwithstanding the pummeling that straw man sometimes takes from the deficit doves. What we do believe is that fiscal prudence counsels against accelerated debt accumulation during a time of full employment, as opposed to trimming deficits and preserving fiscal space to deal with the next recession — among other priorities, foreseeable and otherwise, with which the country will be faced. We agree with CBO Director Keith Hall, who examined the latest numbers and remarked that “it’s hard to imagine this is sustainable ,” and with Fed Chair Jerome H. Powell, who told members of Congress at a Feb. 27 hearing that “the idea that deficits don’t matter for countries that can borrow in their own currency . . . is just wrong.”
In a healthy democracy, the budgeting process reflects a reasonable balance between the resources available and policy priorities, both present and future. Leaders persuade voters to accept trade-offs in the public interest. In an unhealthy democracy, leaders pretend that resources are unlimited and compete for voter favor by promising the moon. They engage in magical thinking. They opportunistically abandon their party’s supposed fiscal principles, as the Republicans have done under Mr. Trump. Judged by these criteria, alas, democracy in the United States is not healthy.