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**FEBRUARY 17, 2023**

Kuttner on TAP

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**** Beware Debt Hysteria

Spending cuts for the sake of debt reduction would weaken both Biden and
the economy.

There is a new round of hysteria about supposedly rising deficits and
debt, giving leverage to House Speaker Kevin McCarthy's strategy of
holding the debt ceiling hostage for deep program cuts. The latest
report of the Congressional Budget Office
<[link removed]>, released
February 15, showed the federal debt relative to GDP increasing from 98
percent this fiscal year to 118 percent by 2033-though on the other
hand, the deficit has fallen drastically
<[link removed]> over the last two years.

That debt-to-GDP ratio should not be alarming per se. It was higher at
the end of World War II, on the eve of three decades of sustained
prosperity.

But the CBO's numbers produced ammo for the fiscal right
<[link removed]>
and the Democratic deficit hawks, as well as hand-wringing in the
mainstream press
<[link removed]>,
all of which increases pressure on Biden to agree to some budget cuts.

CBO also acknowledged that public spending was lower in 2022 than in the
two pandemic years of 2020 and 2021. Besides spending, the other factor
in deficits is revenues. A prime culprit in the rising level of deficits
and debt is the Trump tax cuts, whose reduction in revenues account for
about 40 percent of increased deficits.

The other main culprit is the Federal Reserve. Tight money policies
increase interest costs on the public debt.

In its report a year ago, the Congressional Budget Office projected that
net interest payments would cost the Treasury $8.1 trillion over the
next decade. In its latest report, CBO raises that to $11.1 trillion.
Most of that is the result of higher interest rates. If the Fed would
just take its foot off the economy's oxygen hose, those projected costs
would recede.

It's the same story with economic growth. Under Biden, the economy
created a record ten million jobs in two years. The public debt becomes
far less of a problem relative to GDP if the economy keeps expanding
rapidly and avoids a recession. This prospect can also be made worse or
better by Fed policy.

The larger point here is that austerity never works to reduce the
all-important ratio of debt-to-GDP. The far sounder approach is to keep
the expansion and job creation going.

Biden's public investments are responsible for a stunning recovery. It
would be perverse economics and dumb politics to undermine that success
for the sake of debt reduction.

Here are some other prospect.org <[link removed]> pieces you
might like:

* Luke Goldstein on the FTC's battle against worker non-compete
agreements
<[link removed]>

* Joan Fitzgerald on the obstacles to wide installation of heat pumps
and Maine's success
<[link removed]>

* David Dayen on excessive document classification
<[link removed]>

* Nicholas Slayton on successful tenant organizing in LA
<[link removed]>

Thanks for reading.

~ ROBERT KUTTNER

To receive this newsletter directly in your inbox, click here to
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[link removed]

[link removed] How Los
Angeles Tenants Beat the Landlords-For Now
<[link removed]>

The rise of a renters' movement and their electoral victories last
November have reshaped some fundamental city policies. BY NICHOLAS
SLAYTON

[link removed]
Elon Musk Shows How Oligarchy Poisons the Speech Commons
<[link removed]>

Free speech is not when one rich guy gets to shout 1,000 times louder
than anyone else. BY RYAN COOPER

[link removed]
Mourning on the Red Cedar River
<[link removed]>

Three college students are left dead. Five injured. The rest of the
state is wracked in grief. BY JAROD FACUNDO

 

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