Affirmative John R. Dykers led off the scheduled Braver Angels debaters with a moderate, balanced view of the place of federal budget deficits in the modern economy. (Affirmatives argue in favor of the debate resolution.)
“It is likely that we can all agree that this is always the discussion. There must always be a balance of the problems on which we are spending the money, (which) must also be balanced against the tolerance of those who lend the money through the bond market,” he said. “If spending makes us as a nation a more effective producer of goods and services, and a more effective entity to repay the money,” and the spending creates more income to be taxed, then the circular nature of such spending is worthwhile.
This circular nature of the economy – the “multiplier effect” – only works if the deficit spending doesn’t overheat the economy and trigger high levels of inflation, which the U.S. has not experienced through several cycles, well before The Great Recession of 2009-10.
While deficit hawks often point to the portion of debt held by China, for example, it is not one of Dykers’ serious concerns. Japan holds about 5%, and China slightly less than 5% of our debt through bonds, he notes, while other countries hold about 30% with the rest held in the U.S. (by financial institutions and largely through 401Ks, by individuals). In the Q&A, moderated parliamentary style by debate chair Luke Nathan Phillips, Dykers was asked, “How do you know when you’ve spent too much?”
Interest rates and bond prices, Dykers responded. When interest rates go up and bond prices go down, it’s a sign that we’re in for high inflation and an overheated economy that could result in high unemployment and financial pain for many Americans.
But, he added, “it’s so complex, it’s hard to know when that happens.”
Despite trillions of dollars of coronavirus relief programs through the Trump administration and to President Biden’s $1.9-trillion American Relief Plan Act (ARPA) and proposed $2.3-trillion infrastructure package, the Federal Reserve’s target rate for interest remained in March at an historical low, of 0%-0.25%.
“We’re now such a global economy that inflation pressures are now down from when we were a local economy,” he said. “Often this is signaled by the bond market.”
The second of the two affirmative speakers for the resolution, software engineer Bett Bollhoefer, argued from the point of view of younger generations who are looking forward to a post-cash economy.
“It’s not a major risk for the economy,” Bollhoefer said. “It’s a major risk for the citizens.” Her peers are “looking for places to put their money” with returns “higher than inflation.”
In other words, crypto-currency, like Bitcoin appears to be the future. Currency by fiat, such as the U.S. dollar has no inherent value. Cash is through with, she posits, and this is what her peers looking for a currency of value greater than inflation are saying.
Bollhoefer likened recent quantitative easing – in which the Federal Reserve bought up government bonds in order to push more money back into the economy for consumer spending – to “giving every citizen a (currency) printer.”
But deficit spending would build infrastructure projects and improvements “that we’ve been ignoring for years,” one debate audience member maintained.
“If the government is spending money for infrastructure, then the money has to come from somewhere,” Bollhoefer replied.
Opening arguments by the affirmative debaters didn’t fall closely in line with those of traditional deficit hawks, but the Braver Angels audience-member debaters, whom The Hustings will cover in the next post this weekend, will provide a more hard-line point of view.