April 09, 2021

Maya MacGuineas and Robert Reich

Former Labor Secretary Robert Reich and federal budget expert Maya MacGuineas discuss America’s staggering national debt and what should be done about it.

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Are the policies of today bankrupting our tomorrow? THIS WEEK on Firing Line

Biden: “It’s not a plan that tinkers around the edges. It’s a once in a generation investment in America.”

A 2.3 trillion dollar infrastructure bill now on the table. After more than 5 trillion dollars already marked for COVID relief

Leahy: The bill as amended is passed. 

And our national debt is soaring — 28 trillion and counting. My guests this week are former Labor Secretary Robert Reich and Maya MacGuineas, a public policy expert who focuses on federal budget responsibility. I ask them: What do these staggering numbers mean?

And what should we do about them?


HOOVER: Maya MacGuineas, welcome to Firing Line. Secretary Reich, welcome back to Firing Line. 

REICH: Thank you. 

MACGUINEAS: Thanks so much. 

HOOVER: Robert Reich, you served in three presidential administrations, including as Labor Secretary for President Bill Clinton. And Maya, you are the president of the nonpartisan Committee for a Responsible Federal Budget. I’d like to start first with a television advertisement from the 1980s warning in very stark terms about the consequences of the national debt. Take a look. 

TV AD: Morning, shall we get down to business? Now that you’ve joined us, you’ll enjoy numerous rights and privileges, but you will share certain problems as well. Specifically, you owe the United States government, in round numbers, fifty thousand dollars. 

HOOVER: When that advertisement aired in 1984, the national debt was just under two trillion dollars. Right now it is at 28 trillion dollars, with nearly eight trillion dollars having increased under President Trump. Why does the national debt matter? Maya, you first.

MACGUINEAS: Sure. So it is a dry issue that’s kind of hard to make it personalized to people’s lives, but the national debt is actually one of the things that underlies all of our economic strength and more recently, our geopolitical strength in many ways as well. If you’re running a debt that is too high — and I would certainly argue that we are in general in this country — not right now during the covid crisis, because that’s exactly when you should be borrowing. But the fact that we borrow so much when the economy is strong, you jeopardize your economy by having a debt that could be growing faster than the overall economy, that’s happening now. That means you’re vulnerable to not having enough money to borrow when the next crisis comes, which is the time when you really do need to be able to borrow. And it means that you’re weaker, kind of in a geopolitical sense. We know that right now competition with China is heating up, yet China owns a trillion dollars of our debt and continues to lend money, that it makes us more vulnerable in ways that we really don’t want to be. Whether you’re the biggest conservative and you want tax cuts or the biggest progressive and you want big new spending, if your money is going to interest payments, you can’t choose between either of those. So it shrinks the pie. And the last thing I would say is if you’re borrowing for productive investments, that’s one thing, but the history of the debt in this country is that more often than not, we are borrowing just bcause we don’t want to pay the bills. And that’s not the right reason to hand on a big mountain of debt to the next generation, which is what we are currently doing. 

HOOVER: Secretary Reich, Herbert Hoover famously quipped in 1936, wait for it, quote, “Blessed are the young, for they shall inherit the national debt.” Tell me, do you disagree with the premise of that quip? 

REICH: I don’t completely disagree with it. But Margaret, I was thinking when you played that advertisement of something that my father said to me when I was a very small boy in the early 1950s. My father, you have to understand, was a Republican. And he said to me, Bobby, you and your children and your children’s children will be paying down the national debt created by Franklin D. Roosevelt for your entire lives. And I was, I was just, I was just panicked. The fact of the matter is that you’ve always got to understand that it’s the debt, it’s the ratio of the debt to the economy overall. And I don’t disagree with what Maya was saying. If that ratio gets too out of whack, that is if your debt starts growing faster than your economy overall, and you’re not using that money that you’re borrowing for investments in future growth, then you could be in trouble. But the debt itself, just as a number, has no meaning whatsoever. 

HOOVER: At the end of 2020, the federal debt was one 129 percent of GDP, the likes of which we really haven’t seen since the end of World War II. Secretary Reich, is it your view that having the debt at over one hundred percent of GDP for an extended period of time is bad for the economy? 

REICH: Well, I wouldn’t put a specific figure or a number or percentage on it. I think that if we are spending a lot of that for future investments in, for example, infrastructure, education, retraining, research and development, all of the things that grow the economy in the future, then I would say those kinds of public investments are appropriate. I’m not going to worry that they may take 100 or 200 or 300 percent of the economy. 

HOOVER: Secretary Reich, you were on Firing Line as a guest with William F. Buckley Jr. at least two times by my count. Here is another Firing Line from 1992. William F. Buckley, Jr., welcomed the editor of The Economist, Clive Crook, and the founder of The American Prospect, Robert Kuttner, in a special Firing Line debate on reducing debt and reducing the debt and the deficit as a national priority. Take a look. 

CROOK: I mean why would you want to reduce the deficit ever on your view?

KUTTNER: Oh, because I think we all agree there is some level which is unsustainable. The question really–and this is the narrow debate–is whether 50 percent of GDP is such an unsustainable level that we all ought to be tightening our belts and condemning the economy to slow growth. 

CROOK: But the truth is, as you said, no one knows what–

KUTTNER: No, you said that. 

CROOK: No one knows– Well, you are saying you know what the figure is; if so, tell us what the figure is. 

KUTTNER: I’m saying that America’s historical experience shows that an economy which is otherwise healthy, which is investing a lot of its product, can sustain a deficit of 119 percent of GDP–that was the peak after World War II–and not have that do terrible things. On the contrary, that did beneficial things. 


HOOVER: They’re having the same debate 30 years ago that I’m asking you all about now. What is the number? You’re saying it could– you’re comfortable with 200 percent or 300 percent? There is no clear number. 

REICH: Yeah, Margaret, I said I was comfortable with 200 and 300 percent if the purpose of the borrowing is to build future capacity. That is if the economy will grow dramatically because of your public investment, then the debt as a percentage of the GDP, as the percentage of the economy will naturally decline. I would be concerned, however, if we were not spending that on public investment. And let me just say that I have a certain credibility, certain creds here because I was a member of an administration. The only one that actually balanced the budget and ended with a surplus. 

HOOVER: You served in the Clinton administration, which, of course, was the last administration with the help of a Republican Congress to achieve this historic budget surplus. Is it your view that that was the right policy for President Clinton to pursue? 

REICH: No. Actually, Margaret, I thought that it was not necessary. There were a lot of things that President Clinton could not do in terms of public investment — in education, in infrastructure, in basic research and development — that he and ideally America should have done during those years, but did not do because of this totem of bringing the deficit down and balancing the budget. I don’t think we want a rigid formula here. It turns out that we could get — and this actually is one of the legacies of the Trump administration — we could, as an economy grow very fast and not risk inflation and have a very, very large national debt, much larger than we assumed we could as a proportion of the total economy. And many of us watching the Trump administration lead us into this kind of extraordinary debt were surprised because nobody knew that we could have avoid inflation with unemployment that low and with that much national debt. 

HOOVER:  Well, I was surprised, too. But Maya, I’d like to ask you, is the debt, is the national debt at totem? 

MACGUINEAS: No, I have a very different take on that, so let me turn back to sort of where we were before the Covid crisis, which was the Trump administration led us to borrow almost five trillion dollars during a period of economic expansion. This is unprecedented, because normally what we have done is brought the debt back down when the economy is strong, borrowed when the economy is weak and the approach there seemed to be, borrow for every single thing you can find. The result of that is that you can put a sugar high into your economy. You can have kind of pumped up growth for a short amount of time — a year, maybe two years — but it is not going to persist. So I think the real issue here is what we do with all of this borrowing, is we continue to push the hard things into the future. And I think one thing we’ve all agreed on here is we don’t know what the number is. We don’t know when your debt becomes too large. But what seems really dangerous to me is that our politicians seem intent on putting us on track where we’re going to find out. 

HOOVER: Do you think Maya it was the right thing for the Clinton administration to have balanced the budget and created a federal surplus? 

MACGUINEAS: Absolutely. I was going to say congratulations Secretary Reich. It was terrific work. They really did a good balanced package. And I point to it as one of the last big successes that we’ve seen in government, where it’s– It’s beyond just the fiscal problems that we have. It’s when our political leaders were willing to do things that were hard. But now nobody is willing to kind of level with the American people that you can’t borrow indefinitely. And if you want to do things you have to be willing to pay for it. And I think this is what’s dangerous, the notion that everybody’s trying to sell the American public that you can have a free lunch, that this thing will pay for itself or this thing is so important, you shouldn’t pay for it, or just go ahead and print lots of money. Those things are not leadership. And I think what the Clinton administration, with the help of a Republican Congress at the time was political leadership. 

HOOVER: Maya, you wrote an op ed in December and you said, quote, “Once the economy is strong enough, as indicated by growth and employment rather than political whims, the administration and Congress should gradually implement sensible measures to get control of the debt.” Now, the IMF has just announced this week that they expect the global economy to grow faster than it has in four decades by six percent this year. And US unemployment in March made it down to six percent. So is now the time, Maya? 

MACGUINEAS: Well, so the good news is it seems like we may be, fingers crossed, on the path for a strong recovery. And after this terrible year, that would be a huge relief, particularly for all the people who have been suffering during this. If the economy really starts to boom, jobs come back, wages come up. So that’s terrific. I think it is right now the time to stop borrowing. We just had six trillion dollars worth of money that was put into the economy. That’s a lot, and there’s a lot in the pipeline. And it seems like it’s probably going to be more than we needed. The next step is to start paying for any new initiatives. And the great news is the Biden administration has come out with a big infrastructure bill and they are saying that we need to fully pay for it. That is the right first step. I think we want to see the economy actually be stronger, not just have projections, but we want to have a number of months or quarters of strong growth before you gradually start to put in a debt reduction plan. But right now is the time to stop borrowing, gradually pivot into paying for things, and then will gradually pivot into hopefully bringing that debt back down. So it’s not growing faster than the economy, which is the trajectory that it’s currently on.

HOOVER: If we were to go about prioritizing, paying down the debt, it is now 28 trillion dollars. How would you even begin to think about that Maya?

MACGUINEAS: Sure. I’ll tell you exactly how I think about it, but I would start by saying we don’t have to pay down the debt. All we have to do is switch it so the debt is no longer growing faster than the economy. If our economy’s growing faster than the debt, it will remain manageable. But we can’t have it on the trajectory that it’s on, which is which is dangerous and unsustainable. Here’s what I think we should do, we should start by sticking to the notion of PAYGO. If you’re going to do something new, and that’s on the spending side and the tax side, offset those costs. The second thing is we have four major trust funds that are headed towards insolvency in just over a decade. Both of Social Security trust funds, disability and retirement, hospital insurance for Medicare, and the Highway Trust Fund. We have to fix those programs. There are many ways to do it, but we have to fix them. The next thing is we have to start putting in a balanced package. And I would say you have to look at both spending and revenues. There are a whole lot of ideas that would be consistent with Biden’s plan not to tax people under 400-thousand dollars. There are other taxes like a carbon tax that I think are important. We have 1.8 trillion dollars in tax breaks a year called tax expenditures. We should wipe so many of those out, particularly in the upper end, and then we need to think about spending reductions. So we used to have spending caps in place. They’re gone now. There were too aggressive before, but we should put in reasonable ones that Congress can actually stick with and have some kind of a balanced plan. I could go on all day about how you would pay for these things. It’s the harder side of politics, but it’s how you build trade offs into the budget so that you really do that exercise of if something’s worth doing, it’s worth paying for.

HOOVER: Secretary Reich, let me ask you about something that I’ve observed in the debate about the national debt, which is it seems to be that there is a paradigm shift on the left that maybe the debt doesn’t matter at all, ever. What is your view about modern monetary theory and this general approach to the debt? 

REICH: Well, I think there is something to modern monetary theory. That is, we do print our own money and the world is awash in money right now. Interest rates are historically, extraordinarily low, not only short term interest rates, but long term interest rates. But I think it cannot be taken too far. Again, I want to emphasize two things. Number one, I agree with Maya that there needs to be some discipline and we can’t just simply assume that we can just add forever to the national debt. And I do think we have to raise taxes on the wealthy. We’ve got to, if you’re asking me how else we can get some money together, I would say let’s take a look at national defense, which is 720 billion dollars a year. We’re spending more than the 10 next biggest nations put together with regard to their spending on national defense. It’s absurd we could cut that dramatically. I think Biden is also on the right track in terms of asking big corporations to bear some of the burden. You know, the corporate revenues, and Maya, I’m sure you know this, corporate revenues, from corporate taxes that is, used to be in the 1950s about 45 percent of total federal revenues. Corporate taxes now account for seven percent of total federal revenues. A huge, dramatic, dramatic drop in who is actually paying the cost of our government. And I think corporations ought to be asked to pay much, much more. 

HOOVER: Listen, there has been a lot of spending in recent years. There are economists that think that this amount of government spending could ignite an inflationary spiral like the US had in the 1970s. At what point, do you all have a view, at what point the Federal Reserve should raise interest rates? Or is inflation like debt something that the government can ignore? 

REICH: Let me just say two things. Number one, it’s not just spending, it’s also tax cuts.  I mean, the big Trump tax cut was about one point nine or two trillion dollars of the over a 10 year period. That’s not nothing. Number two, I think that what we do need to be aware of is that there are structural changes in the global economy and in the United States economy that may make it easier to avoid inflation than it was in the late 1970s when Paul Volcker broke the back of double digit inflation. Alan Greenspan in the 1990s was very explicit, unusually for him, because very often you couldn’t tell what Alan Greenspan was saying. He avoided being understandable. But one of the things that he was very explicit about was that we were living in a new globalized economy in which companies can get additional capacity for production very, very easily and very, very cheaply abroad. And also, labor unions were far less powerful than they used to be when a third of the country’s private sector workforce was unionized in the 1950s. Now we’re down, down to under seven percent is unionized. So for that reason, inflation, for those two reasons, inflation is less of a problem than it used to be and poses less of a threat, even though we have a lot of spending and a lot of tax cuts. 

HOOVER: And Maya, did you want to add anything? 

MACGUINEAS: Well, I think that that that’s right, that globalization has changed the macro dynamics in our economy and both inflation has been easier to control and interest rates have been lower than we thought they would be. But those trends are not going to last forever. I think more troubling right now is that if interest rates were to go up by a single percentage point. We have so much debt that that adds three trillion dollars to our interest payment bill over a decade. That’s one and a half of the reckless Trump tax cut. So this, and that’s just one percentage point. We are really vulnerable. And I think I would describe the fiscal situation that we have in so many ways as increasing our pockets of vulnerability at a time where we already have risks and challenges we should be dealing with. We should be thinking about how to grow the economy for the long term. We should be thinking about how to update our social contract for the new risks and challenges around the changing workforce. We should be thinking about how to grow the economy for the long term. We should be thinking about how to update our social contract for the new risks and challenges around the changing workforce. But that debt is just a huge weight around us while we’re trying to think about all of those issues. 

HOOVER: President Biden’s infrastructure proposal will cost 2.3 trillion dollars, Maya, you wrote in a column last month, quote, “updating our infrastructure can definitely help our economy, but not if it increases our country’s already massive levels of debt.” Proponents of the legislation argue that it pays for itself in terms of economic growth. Does it?

MACGUINEAS: No, it doesn’t. We should stop wrapping things in pretend promises. This doesn’t pay for itself. Tax cuts don’t pay for themselves. But that doesn’t mean that this isn’t a good thing to do. Spending on infrastructure is definitely an important thing to do. And that’s why it’s so important that the Biden administration has also said they plan to pay for their infrastructure. So this is a very large package. I think we are behind on our infrastructure, but I would argue that this package is probably going to prove to be much too big in certain places. And you could scale it back to a more moderate size, still large, but more moderate. But as long as we are honest about what it will cost and what it will pay for, this is a good discussion to be having. I think it’s a little dangerous to put huge price tag, new spending agenda items out there before we have a plan to deal with the existing debt. I would flip these and say, how are we going to handle the debt so that it’s not growing faster than the economy, get it to a reasonable level? And then how are we going to make sure that we make investments in the area of the economy that have been so neglected, both infrastructure and really importantly, in human capital?

HOOVER: Mr. Secretary, I have a feeling you have a different approach.

REICH: Well, I do have a slightly different approach, and that is, it seems to me, if we are making public investments that qualify as public investments in terms of there’s reasonable empirical evidence that the return on every dollar spent for infrastructure or education or research and development or early childhood education is more, quite substantially more, than the dollars we put into it in terms of economic growth, in terms of overall prosperity, then we ought to be doing it, and we shouldn’t be sort of rigidly restricted with regard to any kind of notion of national debt. If something qualifies as a public investment because the return is substantial for the country as a whole, then we ought to be doing it. 

MACGUINEAS: Could I put a finer point on that? In that, two, the actual package is two point seven trillion dollars it turns out? And there’s absolutely no way that that big a package, all of those items, come anywhere close to paying for themselves. You could probably find a couple billion that pay for themselves. And so we shouldn’t pretend that it’s going to have a huge growth dividend that will pay for itself. There’s no study that finds that. And in fact, the Congressional Budget Office has also shown that if you deficit finance your infrastructure spending, it ends up probably creating negative growth because of the damage of the debt. So that’s why it’s helpful to pay for it in smart ways as well.

HOOVER: Let me ask you one final question. We have used in the past several years Federal Reserve monetary stimulus and government spending to pull us out of two recent crises, the housing crisis of 2008 and now Covid. If we had another financial crisis, or another pandemic occurred, would the Federal Reserve and the government’s balance sheets be enough to handle a crisis of the same magnitude. Secretary Reich? 

REICH: Well, what we know from the Great Recession and the response to the Great Recession and what we can infer from the early responses to the pandemic is that we have the capacity in terms of fiscal and monetary policy to do what’s needed to get out from under these crises. If anything, we failed in the Great Recession, starting in 2008, 2009, to do enough. I think that history will judge that we probably have done enough with regard to the pandemic to dig out from under this, but I think it’s important not to– you’re going to err on one side or the other because there’s no science here. You don’t know about the future. I think it’s important to err on the side of getting people employed, making sure that people are not suffering, making sure that people are housed and fed. And if you spend a little bit too much, so be it. 

HOOVER: By not putting our fiscal house back in order do we potentially have fewer arrows in our quiver to solve the next crisis? 

MACGUINEAS: Yes, um so on this one, I disagree because it does really gravely concern me that both toolboxes of fiscal and monetary policy are being depleted of all the tools. And if there’s one thing we know, it’s that we will face another crisis. They are coming more regularly and they’re scary. There’s all sorts of different kinds of things we could be hit with and we should be prepared. And so I think the elegant solution to this is when we borrow in these crises and we will continue to have to, to tie that borrowing with long term offsets. So you can borrow a certain amount of money today to fight a pandemic or a recession or an attack. But when you do that, you have a bunch of things that you’re ready, which you agree will be put in place, which will help get your long term debt under control. Because the last time we came out of the crisis, the debt continued to rise for every year after that, even when the economy was strong. And it didn’t leave us as prepared this time. Our politicians, they’re pretty good at borrowing the money. They’re not so good at paying it back. We need to nudge them in the direction of being more fiscally responsible and focusing on the longer term.

HOOVER: With that, Maya MacGuineas and Secretary Robert Rice, thank you for the conversation and thank you, Secretary Reich, for returning to Firing Line. Maya, thank you for being here. 

MACGUINEAS: Thank you. 

REICH: Thank you very much, Margaret.

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