Some voices on the left are suggesting that Democrats should emulate the post-1980 Republicans, and increase deficits any time their own president is in power:
Meanwhile, inflation hasn't emerged and interest rates have failed to rise in response to steadily mounting debt. That has made even sober-minded economists grow friendlier to the idea of deficit spending in general. In other words, the economic risk of Democrats abandoning fiscal responsibility seems to have diminished.
What would be the result if the U.S. went from having only one fiscally responsible party to having none? The Democrats could gain an electoral advantage in the next few election cycles. But it’s possible that the negative consequences of excessive debt -- a loss of investor and consumer confidence, leading to high interest rates and inflation -- could materialize earlier than expected. It might be that interest rates and inflation have yet to respond to rising debt precisely because markets expect Democrats to come in and clean up the mess. Take away that reassurance and markets might get spooked, making debt less sustainable.
The solution, of course, is for both parties to agree to tie deficit spending to the state of the economy rather than to political opportunism -- to allow deficits to increase when times are bad and to cut back when the danger ends, just as Keynesians would advise.
But bitter partisan polarization may make such a pact impossible. Given Republican insistence on electoral advantage above all else, Democrats may have no choice but to respond in kind. The question of just how much debt the U.S. can safely sustain may soon get a definitive answer.
This opinion piece was provided by Bloomberg News.