Loading ...In a normal business cycle, the economy expands for a while and businesses hire lots of new people at somewhat higher wages, generating enough
tax revenue to shrink the government’s budget deficit – and in rare cases produce a surplus. So, for a while, the government borrows less money.
Not this time. The current recovery is nearly ten years old and the labor market is so tight that desperate companies are trying all kinds of new tricks
to attract workers – including higher wages.
Yet the US just announced its intention to borrow $1.3 trillion in this fiscal year, the most since the depths of the Great Recession.
And this isn’t a one-shot deal. Trillion-dollar deficits are now projected for as far as the eye can seeIt’s useful to note that even Keynesianism, generally the most debt-friendly (or debt-oblivious) school of economic thought, views deficit spending as
a cyclical stabilizer. That is, in bad times governments should borrow and spend to keep the economy growing while in good times governments
should scale back borrowing – and ideally run surpluses – to keep things from overheating.
But now we seem to have turned that logic on its head, with fiscal stimulus ramping up in the best of times, when unemployment is low, stock prices
high and inflation stirring. New Age fiscal policy seems to call for continuous and growing deficits pretty much forever.
As I said, unprecedented and definitely ominous.