US Economists back spending more
Economists are divided about when the next US recession will arrive, but they largely agree on this: The country will need to fight it with a massive fiscal programme, and be ready to swallow deficits that may eclipse the trillion-dollar shortfall run by the Trump administration this year.
Past discussion has focused on the US central bank, the Federal Reserve as the more powerful first responder, and how rising US debt carries its own risks.
Now talks are about how much money ought to be spent and where it should go — whether to infrastructure, programmes to counter climate change, or direct payments to households.
In the next recession, the US should contemplate “a pretty generous package”, of perhaps as much as $1.7tn (€1.5tn), double the amount approved for recession fighting in early 2009 during a steep downturn, Karen Dynan, a former Fed and US Treasury official now at the Peterson Institute for International Economics, said.
This pro-debt attitude finds broad agreement among corporate economists, academics, think tank analysts, and private forecasters alike, and not just in the US.
Japan, with debt twice the size of its economy, has had no trouble issuing more. While Japan’s situation is unique in some ways, even Europe’s more debt-wary nations may be opening to the idea that there are good reasons to borrow, particularly to meet emerging commitments to reduce reliance on carbon-based fuels, said Jean Pisani-Ferry, a senior fellow at Bruegel, a European think tank.
Fighting climate change “may be an excuse for fiscal action” in countries that would be wary of spending just to boost short-term consumption, he said.
The shift in tone on government debt comes as Europe is facing a possible recession, China’s economy has ebbed, and concern is rising about a possible US slowdown. An ongoing US-China trade war may lead to a long and costly adjustment.
The consensus that major world governments can borrow more is driven by a simple fact: over a period of time when the US was running up a trillion-dollar deficit, interest rates on US Treasury bonds stayed low.
