The looming debt ceiling fight in Congress has many an economist thinking about the consequences of a scenario in which America defaults on its obligations.
The political wrangling has also renewed a larger discussion about how the government spends money and the merits of more borrowing to fund programs. Earlier this week, we talked with Clara Mattei, author of “The Capital Order,” a book that looks at the dangers of austerity.
For a different perspective, we spoke to Michael Boskin, a professor of economics at Stanford University who’s written a lot about the perils high government debt and spending. He also headed the U.S. Council of Economic Advisers during George H.W. Bush’s presidency. According to Boskin, today’s debt ceiling fight is a reminder of the dangers of excessive public spending.
“There’s a lot of evidence that when debt gets too high, it can be a drag on growth,” Boskin said in an interview with Marketplace’s David Brancaccio. “Because the economy is always subject to booms and busts, there’s some automatic changes in the budget position. But then there’s discretionary spending. And that, I think, most economists would agree was a — not the only — but a prime culprit in this surge of inflation.”
The following is an edited transcript of their conversation.
David Brancaccio: You’re an economist, and I assume you’re also a taxpayer. When you worry about too much government spending through borrowing, is that just the taxpayer in you worried? Or is the economist in you also worried?
Michael Boskin: Oh, it’s the economist. There’s a lot of evidence that when debt gets too high, it can be a drag on growth. Because the economy is always subject to booms and busts, there’s some automatic changes in the budget position. Tax revenues go up more than income because of the progressive income tax when we have a boom, and they fall more when we have a bust. So those are called automatic stabilizers. And they’re actually good for the economy, they prevent a recession from being worse or a boom generating even more inflation than it might. But then there’s discretionary spending. And that, I think, most economists would agree was a — not the only — but a prime culprit in this surge of inflation.
Brancaccio: Yeah, that it can be inflationary when we are borrowing so much to spend so much.
Boskin: What are the reasons to be concerned? One is intergenerational equity. If growth is going to be slower than it has in the past, that’s going to mean that future generations aren’t going to be that much richer than we are. And the double whammy of then giving them a bigger burden of the debt would be unfair to them, unless the debt was incurred for something really important that benefited them.
Brancaccio: You know, it’s a question of where you stand on this stuff. It may be there’s just a social program that helps lift up a family’s chances of succeeding so they can pass on wealth to their children. That might not be a waste, either. It depends who’s talking and who’s benefiting and who’s losing.
Boskin: Well, there certainly are distributional issues here. Some of those programs may be desirable, but most of the money is financing current consumption. So some people believe, and I think the evidence suggests that some part of the labor force that hasn’t returned yet is driven by that. If it was really human capital development, for example, children as they get to working age, a better education gets them onto the economic ladder moving up. That’s the aspirational goal. There’s a bigger issue of do the programs actually achieve that? But certainly, human capital investment is an important part of the growth of the economy.
Brancaccio: Yeah, I suppose I should ask before we go, you are a fiscal conservative, yet it’s hard to see either political party as the champions of fiscal conservatism these days, the current fight in the House over the debt ceiling notwithstanding. A lot of spending from lots of people these days.
Boskin: I think that’s correct. If you look at various administrations, President [Barack] Obama ran the largest deficits of any president since World War II until President [Donald] Trump. And now President [Joe] Biden has been doing it. So there seems to have been something of a sea change. Part of it obviously brought on by a legitimate concern and uncertainty about how long-lasting and how deep the COVID recession would be. So, you know, I would cut them a little bit of slack in the early days of that, but once it was pretty clear things were turning around, or the economy was getting close to full employment, throwing additional deficit-financed spending on top of that got to a point where it’s irresponsible, and we — especially lower-income people — are paying a pretty high price because of the extra inflation.
Brancaccio: And what about using the debt ceiling as a tool to force people to focus on some of these issues?
Boskin: In my time in Washington, and as I’ve observed it since, it works to deadlines. It works to pressure points where you have to get something done. So I think in the past, there have been some constructive uses of the debt ceiling debate to kind of push some additional or new rules and changes that may help control spending in the future. That’s a good thing, even if unlovely in how it was done. So would I prefer a world where things were done in regular order, and there was good discipline that spending actually was likely to achieve its results and not be excessive or wasteful? That, of course, we should all aspire to. But in the real world, that hasn’t been happening lately, and for many years, across different administrations. And in that sense, I have some sympathy for trying not to hold it up and risk default, but for trying to use the need to pass something to at least start the process of controlling the growth of spending over time.