Why Now Is the Wrong Time for Republicans to Embrace Debt

The GOP is creating the conditions for the next market crash while handicapping our ability to combat it.

Cast your mind back to what life was like between 2007 and 2009, during the worst financial panic in eight decades. Recall the hell you went through—losing your job, your insurance, your pride and dignity, your family’s security, maybe your kids’ future.

But remember, too, there was no apparent solution. The government did enough to prevent the worst case scenario of another Great Depression. Many thought it should do more, but the Republicans said not until we get spending under control. Nearly $2 trillion had been spent by that point on bailouts and stimulating the economy. Serious people said it would be a grave mistake to keep mortgaging the future. To a lot of Americans, that sounded right. So they pulled themselves up by their bootstraps, scrimped and saved, and toughed it out.

I think everyone agrees a mighty nation is one that can withstand—and even thrive—during times of hardship. But, that’s not my point. My point is that the Republicans told us that the government could not do more. After 2010, the GOP would not support spending another dime on hiring cops and teachers, rebuilding roads and bridges, investing in research and development—all things we needed anyway, but if done in response to a national calamity would blunt its edge.

That’s what President Obama’s proposed American Jobs Act was designed to do. It would have cut taxes by $253 billion and boosted spending by nearly $200 billion. The GOP balked, even though it had favored such policies before. Texas Congressman Pete Sessions said, “To assume that we’re naturally for these things because we’ve been for them does not mean we will be for them if they cause debt, if they [have] tax increases and if they take money from the free-enterprise sector, which creates jobs.”

But what if the Republicans could have done more and chose not to? What if their decision was not about necessity, but will? How would you feel about having sacrificed so much in the face of forces beyond your control? Those questions and more come to mind amid recent decisions by President Trump and the GOP.

The economy is nearing full employment. Wages are rising—slowly, but rising. More people have health insurance and fewer people need unemployment benefits. Yet the Republicans have passed laws recently that require borrowing billions to make up for lower revenues while racking up the annual deficit to over $1 trillion. Trump’s 10-year budget projects the national debt climbing to as much as $30 trillion.

Debt in and of itself is not bad or good. It depends on the context. A context in which hundreds of thousands are suddenly jobless is a good time for debt. But because the Republicans are taking action now, instead of then, they are in effect admitting debt was not an obstacle, that we weren’t going to mortgage our kids’ future. In other words, they choose not to act when action was needed. You’ll note I’m not asking why they didn’t act, just that they didn’t. And because of that, we must ask: did millions suffer needlessly? I think the answer is yes, clearly. That matters. Let’s not forget.

Not acting when action is needed is bad enough. Worse is unnecessary action that could sow the seeds of the next panic while inhibiting our ability to address it. In 2007, the U.S. borrowed and cut interest rates to zero. Next time, it might not have that.

The Republican tax overhaul is, in effect, a gigantic stimulus package aimed at heating up an economy already heating up. As the economy grows, so will worries about inflation, likely forcing the Federal Reserve to raise interest rates (the thinking goes, higher interest rates will keep inflation in check). Those rate hikes will make borrowing more expensive, thus putting a drag on steady economic growth. Indeed, consumer prices rose Wednesday, sending futures on Wall Street downward on justified fears that inflation is rising.

In other words, the Republicans are creating conditions for the next market crash while handicapping our ability to combat it.

Ray Dalio, the founder of the world’s largest hedge fund, Connecticut’s Bridgewater Associates, said to expect a recession within two years. On Monday, he wrote:

There is a whole lot of hitting the gas into capacity constraints that will lead to nominal rate rises driven by the markets. We are in the part of the cycle in which the central banks’ getting monetary policy right is difficult and that this time around the balancing act will be especially difficult.

In plain English, a crash is coming.

There is a lot of talk this week about the Republicans’ shifting stance on the debt. Some say it’s hypocrisy. Others say it’s institutional. Others still say it’s plain grift. While these are legitimate claims, above them should be another view I think is more fundamental, because it’s about a lack of kindness. When the time came for the Republicans to put country over party, they didn’t. When it came time to help their fellow Americans, they didn’t.

And they might fail to do so again. That matters. Let’s not forget.

John Stoehr

John Stoehr is a Washington Monthly contributing writer.