Wider U.S. Deficits To Be Good For Growth

The WSJ is reporting today on a Congressional Budget Office (CBO) study indicating that this year’s budget deficit will be 43% greater than originally forecast.  Furthermore, future deficits beginning in 2020 will exceed $1 trillion per year.

According to the WSJ article, “economic growth will jump above 3% this year thanks to the fiscal stimulus, the CBO said, but the agency predicted the acceleration will prove largely fleeting. Larger deficits will add to the national debt: Debt held by the public will hit $28.7 trillion at the end of fiscal 2028, or 96.2% of the gross domestic product, up from 78% of GDP in 2018.”

“Such high and rising debt would have serious negative consequences for the budget and the nation; in particular, the likelihood of a fiscal crisis in the United States would increase,” CBO Director Keith Hall told reporters (as reported by the WSJ).

We disagree with Mr. Hall’s forecast that the benefit of the stimulus will be fleeting, believing that the additional fiscal boost will remain an economic catalyst well into the future provided that the additional demand for goods and services created from this deficit spend will be met by the economy’s ability to meet that demand.  If production can meet this heightened demand then we should witness above-average economic growth.  If not, then inflation will likely reappear in earnest.

One must remember that the Federal deficit is a liability of the U.S. government, but an asset of the private sector. Our economy (and citizens) has benefited tremendously from the Federal Government’s ability to deficit spend, especially during those periods when the private sector is incapable of stimulating growth.

 

 

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