“Amid all the wild swings in U.S. politics over the past decade, one thing has remained constant: the G.O.P. position on government debt. The party considers high levels of debt an existential threat — if a Democrat is sitting in the White House. If a Republican president presides over big deficits, well, as Donald Trump’s budget director reportedly told supporters last year, “nobody cares.”
So it’s a completely safe prediction that once Joe Biden is sworn in, we will once again hear lots of righteous Republican ranting about the evils of borrowing. What’s less clear is whether we’ll see a repeat of what happened during the Obama years, when many centrists — and much of the news media — both took obvious fiscal phonies seriously and joined in the chorus of fearmongering.
Let’s hope not. For the fact is that we’ve learned a lot about the economics of government debt over the past few years — enough so that Olivier Blanchard, the eminent former chief economist of the International Monetary Fund, is talking about a “shift in fiscal paradigm.” And the new paradigm suggests both that public debt isn’t a major problem and that government borrowing for the right purposes is actually the responsible thing to do.
Why are economists thinking differently about debt? Part of the answer is that we’ve discovered some things about how the world works; the rest of the answer is that the world has changed.
It made some sense, nine or 10 years ago, to worry that the financial crisis in Greece was a harbinger of potential debt crises in other countries (although I never bought it). As it turned out, however, the full list of countries that ended up looking like Greece is … Greece. What briefly seemed like a spread of Greek-style problems across southern Europe turned out to be a temporary investor panic, quickly ended by a promise from the European Central Bank that it would lend money to cash-short governments if necessary.
In other words, those dire warnings we used to hear (and will soon be hearing again) that America faces imminent disaster once government debt crosses some red line were always misguided. We weren’t and aren’t anywhere close to that kind of crisis, and probably never will be.” . . . . .