For the dwindling number of people who still care about the long-term federal debt, the past few years has been the story of one betrayal after another.
As Republicans transitioned from the opposition party to the party in power, and President Trump took over, they’ve gone from treating the national debt as a kind of existential crisis to the United States, to something that doesn’t really matter.
Paul Ryan, who rose to fame with a sweeping plan to overhaul entitlements, presided over a House of Representatives that cut taxes, increased military spending, and blew up prior agreements to limit spending — all without offsetting spending cuts.
And then there’s the case of acting chief of staff Mick Mulvaney. During the Obama administration, Mulvaney was one of the founding members of the House Freedom Caucus, which tried to bring the limited government principles of the Tea Party to Congress. When he was initially appointed to be head of the White House Office of Management of Budget, it carried the promise of having somebody in the administration willing to make the case for the urgency to address the looming debt crisis.
The problem has not gone away, as debt is still projected to reach levels in the coming decades that are unprecedented in U.S. history. The longer we wait to act, the more severe any changes would have to be. Now that he’s representing Trump, however, a president who has eschewed serious efforts to rein in entitlement spending, Mulvaney is striking a much more accommodating tone toward the debt.
“Is the debt troublesome? Sure it is,” Mulvaney said, speaking at the Milken Institute Global Conference. “I got asked yesterday what keeps me up at night and it is the debt,” he said, before going on to explain that he isn’t as worried about it these days as he once was.
He said, “I worry about exogenous shocks to the system where if something happens specifically, particularly, overseas that caused some type of crisis, typically we’d be able to fall back on our borrowing ability to sort of get us through that and I don’t know if you can do that when you’re $22 trillion in debt. At the same time, I’ll be the first to admit, I’ve been complaining about the debt since I ran in 2009, it doesn’t seem to be holding us back from an economic standpoint yet. I don’t know if things are different when you’re the reserve currency. I think you’re in uncharted waters. I think it’s always probably safer to have less debt than more. But I don’t think debt is really driving the conversation about infrastructure.”
The defense of Mulvaney would be that he isn’t denying debt is a problem, he’s just acknowledging that it isn’t hurting the economy right now.
But the problem is, as Mulvaney himself acknowledges, the debt issue isn’t a problem until it is. And once it is a problem, the tools to do something about it are extremely limited. “I used to tell people, we will balance the budget eventually, one way or another,” Mulvaney said. “Either we’ll do it on our own terms, or someone will impose those terms on us and people stop lending us money unless we do X, Y, Z, we’re going to have to do X, Y, Z. We’re probably not capable of balancing the budget right now. If something happened and we had to balance the budget in six months, Washington probably does not have the ability to do that.”
In the midst of a fiscal crisis in which investors become reluctant to to purchase U.S. debt, policy makers then face the choice of: paying sky-high interest rates and exacerbating the debt crisis; printing more money, and thus effectively defaulting on the debt by paying it off with devalued money, and causing inflation; raising taxes significantly, which has negative economic consequences; making sudden and sever cuts to government spending; or some combination of all of these.
This is all the more reason to treat the debt with a sense of urgency now, when it isn’t having a major effect on the economy, and when there’s time to put the nation on a sustainable fiscal trajectory, and reassure investors that the U.S. is still a responsible country that has its act together.
But Mulvaney, even in acknowledging the problem, is downplaying the necessity of addressing it now.
