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In Praise of Budget Deficits

With the presentation of his 2020 budget, Donald Trump has been getting a ton of grief over the large current and projected future budget deficits. While his budget shows the deficit coming down, this is due to large cuts to programs that middle income and lower income people depend upon, like Social Security, Medicare, and Medicaid. His projections for falling deficits also depend on assuming a faster growth rate than just about anyone thinks is possible. So realistically, we are looking at a story of large deficits for the indefinite future.

While this is supposed to be really bad, people who pay attention to economic data may think otherwise. If we look at the Congressional Budget Office’s (CBO) projections for the unemployment rates for 2018, 2019, and 2020, from 2017, before the tax cut was passed, they were respectively, 4.2 percent, 4.4 percent, and 4.7 percent. If we look at CBO’s latest projections for these three years, they are 3.9 percent (actual)  3.5 percent and 3.7 percent, respectively. The difference between the latest projections and the pre-tax cut projections imply a gain of more than 2 million in employment in each of these years.

These two million additional people being employed is a big deal not only for these workers and their families but for tens of millions of other workers who have more bargaining power as a result of a tighter labor market. And, we’re supposed to think this is a bad thing because of the deficit and debt? Tell the children of the people who are now working because of the larger deficit or whose parents have higher pay how the debt is a burden on them.

Of course, giving a big tax cut to corporations and rich people was just about the worst way imaginable to boost the economy. The promised investment boom is not happening. The boost is coming because rich people are spending a portion of their tax cuts and their increased share buybacks and dividends. But we could have also given the money to middle-income and lower-income people who would have been happy to spend it as well.

Even better, we could have used to money to promote clean energy, retrofitting buildings to make them more energy efficient, and subsidizing mass transit. Our children have much more to fear from a wrecked environment than government debt.

In any case, the debt/deficit whiners should acknowledge the substantial economic gains from stimulating the economy with a larger deficit. It is a really big deal for a large number of people at the middle and bottom of the income distribution.

This article originally appeared on Dean Baker’s blog.

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Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

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