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too: Interest rates on 10-year Treasurys reached a four-year high Monday

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Catherine Rampell

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Catherine Rampell

Rampell: Republicans' fiscal flip-flop is breathtakingly ill-timed

23 hrs ago

Catherine Rampell

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Catherine Rampell

Republicans’ plan to Make Deficits Great Again is not merely hypocritical. It’s also terrible policy. Or at least terribly, breathtakingly ill-timed.

In 2009, a few weeks after Barack Obama took office, a Republican political movement — one supposedly grounded in fiscal conservatism — was born.

Sure, the country was teetering on the edge of another Great Depression, a circumstance that would normally call for aggressive fiscal stimulus. Tea party Republicans, however, demanded belt-tightening. They wanted a government that stopped spending beyond its means. That meant, above all, reducing federal debt.

Maybe even passing a balanced-budget amendment!

Curiously, in the past few months, all those fiscal hawks have flown the coop.

The federal government is on track to borrow $1 trillion this year, roughly double what it borrowed last year.

The huge increase is partly driven by the ginormous, plutocratic tax cut Congress passed in December, as well as less-noticed, smaller rounds of tax cuts that have passed since then. Now comes a planned two-year budget deal that includes hikes in both defense and nondefense spending.

President Trump is also pushing for even more deficit-financed spending, including a border wall and an infrastructure package.

With no Democrat in the White House, Republicans have stopped worrying and learned to love deficits. But there are two reasons their fiscal flip-flop is very badly timed.

The first has to do with the business cycle.

As we learned from John Maynard Keynes, deficit spending should be countercyclical. When economic growth goes down, deficits should go up, and vice versa. The idea is that the government can pick up the slack when private demand lags (as was the case back in 2009).

For most of the past 70 years, we’ve basically followed this guidance. Deficits have closely tracked the unemployment rate, with exceptions during wartime. It’s only quite recently — beginning in the last few years of the Obama administration — that the two trends decoupled, as an analysis from Goldman Sachs Economic Research documented last month.

We’re now in one of the longest economic recoveries on record. With unemployment at 4.1 percent, we don’t need more deficit spending to stimulate the economy. Yet here we are.

Ramping up deficits today means we’ll have less room to maneuver when we actually need it — i.e., when (not if) we fall into recession again.

The second reason the timing is poor is a bit more complicated and possibly scarier: Just as we’re asking the world to buy more U.S. debt, fewer people may be interested in doing so.

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