In a recent Op-Ed in The Times, Stephanie Kelton, a former chief economist for the Democrats on the Senate Budget Committee, defended the ascendant yet still marginalized position known as Modern Monetary Theory:
“Governments in nations that maintain control of their own currencies — like Japan, Britain and the United States, and unlike Greece, Spain and Italy — can increase spending without needing to raise taxes or borrow currency from other countries or investors,” she wrote. “The only economic constraints currency-issuing states face are inflation and the availability of labor and other material resources in the real economy.”
Whether Democrats today view the positions of institutions like Fitch as earnest or as a political stunt, the embrace of austerity was remarkably widespread in the early 2010s. Democrats from President Barack Obama to House Speaker Nancy Pelosi supported deals to decrease annual deficits. Mr. Obama lowered the deficit as a share of G.D.P. throughout his time in office — even in the immediate wake of the Great Recession, and at the expense of spending more on policies he ran on in his 2008 presidential campaign.
Most Policy Wonks Say Don’t Cut Back Now
If Joe Biden is elected president, could he face similar fiscal pressures? A reading of some recent comments from Jerome Powell, chair of the Federal Reserve suggests that he may.
At a Federal Open Market Committee meeting this spring, Mr. Powell responded to fearful talk of rising deficits by saying, “This is not the time to act on those concerns.” Still, he added, there will soon come a time when the country will need to get its “fiscal house in order.”
Jorge Barro, a fellow in public finance at the Baker Institute at Rice University, agreed, telling the radio program Marketplace: “It’s not just going to disappear on its own. At some point, we’re going to have to raise taxes or make some painful spending cuts to balance the budget. And when that time comes, there are going to be costs associated with it.” However, Mr. Barro didn’t call for immediate measures.
James Capretta, a senior adviser to the influential Bipartisan Policy Center and former policy analyst for the Senate Budget Committee, recently said that the pandemic-induced “crisis is so huge, potentially so damaging” that “now is not the time to scale back” deficit spending.
So even amid the spirited argument over when and how much deficits matter, there appears to at least be agreement among academics and analysts that this is not the right time to pare back deficit spending.
But economists, think tank fellows and Fed officials can’t cast votes in Congress as it debates another relief package that will determine the fate of many families, states and cities.