[T]he administration of President Donald Trump, the self-described “king of debt,” is running a budget deficit at an annual rate of $1 trillion, or nearly 5% of gross domestic product, in part because of a huge tax cut. The deficit isn’t surging as it did in the depths of the Great Recession and its early recovery years, when the gap ran at $1 trillion-plus from fiscal 2009 to fiscal 2013. It’s occurring as the current expansion approaches its 10th anniversary in June and is on track to be the longest on record.
On the left, meanwhile, Modern Monetary Theory is gaining adherents. Oversimplified, MMT says a government that borrows in its own fiat currency isn’t constrained by deficits, because the bonds it issues can always be paid off by, in essence, printing the currency. If an excess of spending strains resources and causes inflation, fiscal policy can be adjusted to rein it in. Among other adherents, MMT has attracted Alexandria Ocasio-Cortez, aka AOC, the new Democratic member of Congress from the Bronx and a co-sponsor of the Green New Deal, the stimulus scheme authoritatively estimated to cost umpteen trillion dollars.
One definite nonfan of MMT is Federal Reserve Chairman Jerome Powell. Questioned about it during his House Banking Committee appearance last week, he declared, “The idea that deficits don’t matter for countries that can borrow in their own currency, I think, is just wrong.” Moreover, he added, the Fed’s “role is not to provide support for particular policies,” an apparent reference to utilizing the central bank’s balance sheet to finance something like a Green New Deal.