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Affluent Christian Investor | September 22, 2017

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Don’t Cave GOP, This Time Deficits DO Matter

Do deficits matter? Conservatives have sometimes claimed that they don’t. Dick Cheney has said on more than one occasion that, “Reagan taught us that deficits don’t matter.” In fact, he said that to me personally once.

Supply-siders like me have often downplayed the importance of deficits, arguing as George Gilder and Jack Kemp argued in the 1980s that we can ‘grow our way out of it’. But we can only grow our way out of it if we actually grow. And if wedon’t grow, there comes a time when debt grows to the point where it really is unsustainable.

That’s what is so insane about the compromise choir’s siren call for House Republicans to cave on raising taxes on upper income brackets, and on the debt ceiling. I think caving in on either of those issues would be a mistake, of course. But the idea of caving on both is utterly indefensible. If we’re going to engage in even more public debt accumulation, the only possible hope we have to deal with that problem is to ‘grow our way out of it’ like we did before. But we’re not going to grow our way out of anything by raising taxes on the upper income brackets, which are most adaptable to incentives.

And please don’t give me any of that nonsense about how we’d just be going back to the same taxes we had when Clinton was president. We would not. Far more people are above the $250,000 income level now than there were when Clinton raised taxes on them in the early 90s, and leaving the lower income cuts in place while rolling back the higher ones would make our tax code much more steeply progressive than it was then. Finally, Clinton did not have the Obamacare tax hikes, nor any of the other ‘taxes’ in the form of extremely high levels of regulation and dollar devaluation policies. If you want to go back to Clintonomics, be my guest, but take the whole winning formula.

But America is not currently taking the whole JFK/Reagan/Clinton/Bush II’s first term growth path. We’re taking maybe the worst anti-growth path since Hoover/Roosevelt, and that means that deficits matter quite a bit.

Yes, deficit hawks were wrong about the Reagan era, but U.S. debt levels at that time were below 50% of GDP during nearly all of both Reagan terms, rising only slightly above that level at the end of his second.  Now, Gross National Debt as a percentage of GDP is over 100% and rising rapidly. Reagan’s annual borrowing hovered in the 3-5% of GDP category, while for the past few years the deficit has hovered around nearly 10% of GDP. Furthermore, Reagan’s much more limited borrowing was much more palatable to conservatives because a rather large component of it was being used to finance victory in the Cold War.

Let’s do a quick refresher on deficits and debt, the differences and the similarities. Deficits are temporary shortfalls in revenues relative to expenditures. Typically, they’re measured in annual increments. They’re an element of budgets. They’re associated with current operations. In accounting terms they’re similar to Profit and Loss Statements.

National debt, on the other hand, is the accumulated effect of operations during the whole life of the entity. In accounting terms it’s more of a balance sheet entity. Frequently in public discussions the terms ‘deficit’ and ‘debt’ or ‘national debt’ are used interchangeably. This is a serious mistake. They’re very different things which represent very different dangers. Failing to make this basic distinction helped lead to serious errors in outlook during the late 1980s, during which many observers who generally share sound presuppositions about the nature of the economy were given to histrionic predictions of national default, debt monetization, and hyperinflation. These predictions led to seriously ill-timed recommendations to overweight gold in investment portfolios.

On the left side of the spectrum, such focus on deficits, as opposed to national debt, led to a wave of hysteria in the early 1990s which helped create the political pressure to which President George H.W. Bush succumbed when he reneged on his “read my lips” pledge not to raise taxes. The fact of the matter is that, though deficits were high at the time, the national debt was roughly 50% of GDP: a concern, but hardly an emergency. The proper response would have been a focus on long-term spending control and pro-growth policies, not a panic-based, growth-discouraging tax hike.

Debt at the levels which we see now is far more dangerous than anything we saw in the 1980s. They’re at levels generally only seen during wars of existential import, such as our Civil War and World War II, or Britain’s Napoleonic Wars. At such times in history capital markets tolerated high levels of borrowing, at least for the victorious side. Such wars defeated long-time enemies, leading to valuable ‘peace dividends’ afterward. Such wars had very limited time spans, after which there was typically some sort of ‘return to normalcy’ (the phrase used to describe America’s economy after WWI).

Our current situation is not as sanguine. Though the Iraq War has in some sense come to a close, and the Afghan War is scheduled to end, it’s hardly clear that the results have been victories which leave enemies decisively vanquished. In fact, ideological movements sympathetic to the causes we defeated seem to be gaining, rather than losing, influence through the ‘Arab Spring’.

Furthermore, current spending and borrowing levels are more the result of domestic campaigns rather than foreign ones: to subsidies for solar and other green energy proposals, to structurally higher levels of spending on higher education, health care, and social services, as well as on Keynesian attempts to boost ‘aggregate demand’ (whatever that is). History has shown that wars on nebulous enemies like poverty or stagnation do not end with victory, but with capitulation, because the means which government employs for fighting such wars actually create more of the thing the government is fighting against. Poverty never surrenders; stagnation never surrenders; in fact, these things are strengthened by the methods governments use to oppose them.

In short, we will lose our current war on whatever (Stagnation? Inequality? Injustice? Despair?) because our government is really waging a war on reality, and reality always wins.


Article originally published on

Jerry Bowyer is a Forbes contributor, contributing editor of, and Senior Fellow in Business Economics at The Center for Cultural Leadership.

Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.

Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.

Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.

Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.

Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.

Jerry lives in Pennsylvania with his wife, Susan, and the youngest five of their seven children.


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