Tuesday, January 22, 2019

Top Level Warning On Massive US Fiscal Deficit

Even Keynesian technocrats are getting concerned about the massive U.S. fiscal deficit.

In a wide-ranging interview (video below), Gian Maria Milesi-Ferretti, deputy director of research at the International Monetary Fund, warns that EU economies are slowing and that exploding U.S. fiscal deficit is becoming a concern.

The concern about the U.S. deficit is genuine.

President Trump's first budget (for FY 2018) projected a $526 billion deficit in 2019 under his policies. The FY 2019 Mid-Session Review released this summer revised his current budget to a $1,085 billion deficit in 2019. That's an increase of roughly $560 billion, or more than double.

Much of the blame for Trump's deficit should be placed at the feet of Trump's supply-side advisers, Larry Kudlow, Arthur Laffer and Stephen Moore. who argued to Trump that deficits don't matter as long as you cut taxes.

This argument is a scam as I pointed many times. Taxes should be cut, however, you must also cut government spending.

In a new book, Trumponomics: Inside the America First Plan to Revive the Economy by Laffer and Moore with a foreword by Kudlow, it is clear how little they care about deficits.

From the book when they are discussing their advice to Trump during the campaign and after he became president:
Our view about the impact of debt and deficits doesn't fit in the conservative or liberal basket. We are not opposed to debt per se. As Larry would say to Trump on several occasions, perhaps with little exaggeration: "This country was built on debt." But Trump, the self-described "king of debt,"  understood what he meant by that...
We assured Donald Trump that a business tax would help most dramatically to restore American economic growth. He asked how big of a tax cut we could afford. We told him to go as big as possible... To get the economy jump-started and to help middle-class workers. "Don't get stressed out by phony numbers of Washington's bean counters," Larry instructed. "They are always wrong. And the benefits of a higher economic growth far outweigh the cost of short-term deficits."  
Of course, they know this isn't true. Here they are, in the same book, attacking deficits during the Obama administration:
So every dollar the government borrows and spends is money taken out of the economy from the person who buys the bonds...So, at best. the net effect of borrowing on stimulating the economy is zero.
Bottom line: These are economic opportunists who will bend their story in favor of the politician they are serving. When their man is in power, deficits are wonderful, when the other team is in power, deficits don't work.

Here's Milesi-Ferretti with his warning:


No comments:

Post a Comment