PRESS RELEASE: ECONOMISTS RESPOND TO MISGUIDED TALK  OF PRIORITIZING DEFICIT REDUCTION IN UPCOMING INFRASTRUCTURE PACKAGE

 

FOR IMMEDIATE RELEASE
March 12, 2021

Contact:
Maddy McDaniel, Communications Director

[email protected] or 914-471-7716

ECONOMISTS RESPOND TO MISGUIDED TALK  OF PRIORITIZING DEFICIT REDUCTION IN UPCOMING INFRASTRUCTURE PACKAGE

Economist Gabriel Mathy: “Infrastructure is one area where we should worry little about the debt, as infrastructure investment in the American economy increases economic growth and raises American incomes.” 

Former Fed Reserve Economist Claudia Sahm: “Investing in our infrastructure—above all investing in the American people—will not pay for itself immediately, but it will pay off in the years to come.” 

WASHINGTON, D.C. — After the historic passage of the American Rescue Plan, which will grow the U.S. economy by nearly 4% this year, Congress is considering additional public investments in infrastructure, clean energy, and manufacturing to create millions of good paying jobs and to ensure the economy comes back even stronger than pre-pandemic levels. These investments have bipartisan support from a majority of Americans.

However, some — including a recent Washington Post editorial — are already starting to float the idea that concern about the deficit should factor into the size of the package or whether it’s paid for.

But experts and economists dismiss those fears as misguided, saying that investing in infrastructure will boost economic growth and should take priority over deficit concerns:

“Investing in our infrastructure—above all investing in the American people—will not pay for itself immediately, but it will pay off in the years to come. The enthusiastic response from financial markets and the Federal Reserve to the historic public investment in the American Rescue Plan is proof that public investment is a boon for our economy,” said Claudia Sahm, former Federal Reserve economist and New York Times and Bloomberg opinion contributor. “Now that we’ve rescued the economy, we should prioritize making the overdue investments to help the economy fully recover. We shouldn’t let deficit and inflation fears stop us from seizing the chance to get to a better place than February 2020.”

“Infrastructure is one area where we should worry little about the debt, as infrastructure investment in the American economy increases economic growth and raises American incomes. A well-enough targeted infrastructure bill can actually reduce the deficit,” said Gabriel Mathy assistant professor of economics at American University. “Ultimately, U.S. debt is backed by the credibility of the U.S. government to pay off its debt, and a stronger economy enhances this credibility, so any concerns about a future debt crisis make the case for infrastructure investment stronger, not weaker. We need to ensure we leave a strong economy with world class infrastructure to our children and grandchildren. There are investments the government can make that the private sector won’t or can’t undertake, and after years of underinvestment and false promises under the Trump administration, it’s time to invest in the American economy for a durable recovery.”

These economists join a chorus of experts across the ideological spectrum who agree that fears about increasing deficits and debt are overblown — and no reason to shortchange public investment. They say the real figure to watch is the cost of servicing the debt, or how much interest the U.S is currently required to pay on its debt. That figure is shrinking even as spending increases. In fact, experts say the cost of servicing debt today is lower than in the 1990s and early 2000s, when the United States had a budget surplus.

  • Former Chief Economist of the International Monetary Fund, Olivier Blanchard: 

    • “At this stage, I think, nobody is very worried about debt. It’s clear that we can probably go where we are going, which is debt ratios above 100 percent in many countries. And that’s not the end of the world.” [New York Times, 8/21/20]

    • “Put bluntly, public debt may have no fiscal cost…The probability that the U.S. government…can issue debt and achieve a decreasing debt-to-GDP ratio without ever having to raise taxes later, is high.” [Associated Press, 9/5/20]

    • The fact that a particular number, say 100 percent, is salient, may make it scary but does not make it economically relevant…To assess the costs of debt, the right variable to look at is not debt but the safe rate compared with the growth rate. If the inequality holds, the fiscal costs of debt are zero and the welfare costs of debt are small.” [Peterson Institute for International Economics, 2/1/19]

  • Chief Investment Officer for PIMCO, Daniel Ivascyn: 

    • “Fiscal constraints aren’t nearly what economists thought they were. When you have a central bank essentially funding these deficits, you can take debt levels to higher debt levels than people envisioned.” [New York Times, 8/21/20]

  • Treasury Secretary Janet Yellen: 

    • Look at a different metric, which is more important, which is what is the cost of that debt. Look for example at interest payments on the debt as a share of G.D.P. So I think we have more fiscal space than we used to because of the interest rate environment.” [New York Times, 2/23/21]

  • Global Market Strategies at JP Morgan Chase, Meera Pandit: 

    • The critical consideration to examine is not actually the level of debt or the ratio of debt to GDP, but rather the cost of servicing the debt…Despite the surge in government debt to combat the effects of the pandemic, the cost to service this debt is much cheaper than it was in, for example, the mid 90’s to early 00’s when debt to GDP was below 50% and the government operated with a budget surplus.” [JP Morgan Chase, 1/13/21]

  • Former Chair of the Council of Economic Advisers, Jason Furman; Former Treasury Secretary, Lawrence Summers: 

    • “As a share of GDP, the cost of servicing US debt has fallen since 2000, even though federal debt has increased. In 2000, the US federal debt was 34 percent of GDP, relatively close to its post-war low. By the end of 2020, the debt-to-GDP ratio will have nearly tripled to over 100 percent of GDP. At the same time, the cost of servicing this larger debt has fallen, relative to the size of the economy, because of the widespread fall in interest rates across advanced economies. An environment of low interest rates makes it easier to pay off debts. If economic growth rates exceed interest rates, debt will naturally shrink relative to the size of the economy.” [Peterson Institute for International Economics, 12/16/20]

  • Senior Fellow at the Center on Budget and Policy Priorities, Jared Bernstein: 

    • “The idea that we’ve done all this spending and our debt service is actually lower than it was in the pre-pandemic baseline is a remarkable testament to, in my view, how much more fiscal space you get when you have really low interest rates.” [Wall Street Journal, 9/11/20]

  • Senior Fellow for International Economics at the Council on Foreign Relations, Sebastian Mallaby: 

    • “In an environment where inflation is quiescent, interest rates have been stagnant for the last decade also…the cost of national debt is lower than we thought.” [Council on Foreign Relations, 3/30/20]

  • Founder of Yardeni Research, Ed Yardeni: 

    • “While there’s been a lot of concern about the mounting debt, it hasn’t caused the problems that were anticipated by the doomsters. It’s not just a question of how much debt is outstanding, but what is the cost to service that debt.” [Fortune, 9/12/20]

About Invest in America

Invest In America is a national rapid response operation advocating for robust public investment to rescue the economy from the COVID crisis and create prosperity for the future, and to fight back against fear-mongers who use deficit concerns as a scapegoat to starve American communities and businesses of resources.

The operation consists of two components: Invest in America, the charitable and public education arm, which is a fiscally sponsored project of Economic Security Project funded by the William and Flora Hewlett Foundation and Economic Security Project co-chair Chris Hughes; and Invest in America Action, the advocacy and social welfare arm, which is a fiscally sponsored project of Economic Security Project Action funded by Chris Hughes and the Omidyar Network.

Learn more at InvestInAmericaNow.com and @InvestNowUSA, and InvestinAmericaProject.com.

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