This week on Facing the Future, we talked about the nation’s budget challenges with Barry Anderson, former Deputy Director for Budget Review at the White House Office of Management and Budget. He also served as Deputy Director and then Acting Director of the Congressional Budget Office (CBO). Beyond his work on the U.S. budget, Anderson headed the Budgeting and Public Expenditures Division in the Organization for Economic Cooperation and Development (OECD).
Anderson sees some similarities between the early days of the Clinton Administration in the 1990’s and the current situation.
“I remember those first couple of meetings in the Clinton Administration,” Anderson said. “What he wanted to do wasn’t all that dissimilar from what Trump wants to do now. Yes, he wanted to do it much more on the spending side than on the revenue side, but basically what Clinton was saying early in his administration, and what Trump is saying now, is they want to increase the deficit by a tremendous amount to do things that they believe will help the economy.”
Clinton was talked out of it, Anderson recalled, by advisors who warned him that “bond vigilantes” would drive up borrowing costs because of the higher deficits which would limit or cancel out the economic benefits Clinton hoped to achieve.
“That is very similar to what we’re seeing now,” Anderson said. “Mr. Trump is saying, ‘cut taxes a lot and that will spur the economy’ and he’s talked about paying for it. But really there isn’t any program that I’ve seen that comes anywhere near paying for just the extension of the 2017 tax cuts, let alone the other things, such as no tax on tips. But the bond vigilantes, I think, are circling.”
Concern about the bond vigilantes “convinced Clinton not to go ahead with his expansive spending programs. It took a while, but it did produce not only a growing economy, but also the surpluses that occurred at the end of the decade and into the next century,” Anderson said.
Anderson recalled that Clinton “had people who said, ‘Mr. President, you need to worry about this. You need to be concerned about this.’ I don’t see that now. I don’t see the people warning about the bond vigilantes, but I raise them. because the bond vigilantes are on Wall Street and they’re the ones who may have to be the check to the policies of the President.”
Anderson also cautioned about the reaction of overseas markets to the U.S. debt. “Look at Japan. Look at the trading markets in London. Look at the Chinese and look at how much debt they are buying and what they are willing to pay. They’re watching. They’re watching us very closely. The U.S. economy has been doing so much better than other economies in recent years. But is it going to continue that way, and will the trillion dollar deficits continue putting pressure on the U.S. Treasury to borrow the money to fund those deficits, and when it puts pressure on the U.S. Treasury to borrow the money, does that mean the interest rates go up?”
While not rooting for a crisis, Anderson observed that a crisis would “help us get to a set of policy decisions that put us on a fundamentally sound fiscal path, because we’re not on it now.”
“Does it involve revenues?” he asked, “It most certainly does and I hope that when we talk about cutting spending, we take a look at cutting something called tax expenditures – that is spending hiding on the revenue side. And I can say that I am looking at Medicare and Social Security. There are reforms that can be done. Maybe the crises we are facing now will push us in that direction. I hope so.”
Hear more on Facing the Future. Concord Coalition Executive Director Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
