GOP politics threaten US credit rating more than deficit
In her Aug. 13 opinion piece, USA Today columnist Ingrid Jacques lays blame for the recent downgrade of America’s credit rating on, in her words, “Democrats’ unlimited appetite for spending and their refusal to address growing deficits.”
Based on Jacques’ assumption, one would assume the deficit must have skyrocketed since Trump left office and Democrats took charge of the presidency.
Let’s see how deficits have soared in the three years since Biden took office. All data is from the Federal Reserve.
First, I should point out that I’m an economics teacher, and as such — a bit of a numbers geek. You’ve been warned.
In 2019, before COVID hit during the Trump administration, the deficit was $984 billion.
In 2022, it was $1.4 trillion. While that is high, consider the context.
In 2020, with COVID, the Trump deficit was $3.1 trillion.
Under Biden the deficit is less than half that and is trending in the right direction.
The best way to view deficits is as a percent of GDP, which compares the deficit to the overall size of the economy.
Of course deficits are much higher now than they were 20, 30, or 50 years ago. That’s to be expected as the economy grows.
As a percent of GDP, the deficit is actually less than it was in 1983 under Reagan.
In 2020 at the height of COVID, the deficit was a whopping 14.9% of GDP. Today it’s 5.4%, only slightly higher than it was before COVID (4.6% in 2019).
I am not suggesting the deficit should be of no concern. It is high, even when viewed as a percent of GDP.
But under Biden, it is trending in the right direction and is nearing the same level that it was just before COVID under Trump. Unemployment is the same as it was before COVID. And inflation, while higher than we want at 3.3%, has come down from 8.4% a year ago, it is well below that of the EU (5.5%), and it’s on par with most other developed countries.
If you want to know the main reason for our credit downgrade, don’t look at the White House. Look at the other end of Pennsylvania Avenue — the House of Representatives.
Why is it that whenever the GOP takes the majority of seats in the House under a Democratic president, the deficit suddenly becomes an existential threat to the nation?
House Republicans remained mostly silent when deficits soared under Reagan, both Bushes and Trump. The only time the House threatens to allow a default on the debt is when Republicans are in the majority and the President is a Democrat.
It’s when the GOP plays politics and threatens default that our credit worthiness comes under question.
Creditors are justifiably concerned that these threats are not idle, that one day the House will back them up and allow the US, for the first time in its nearly 250 year history, to go into default.
That is the nightmare scenario creditors fear, and so should we all.
Steve Vaughn is a Rockford resident who teaches economics at Rockford Lutheran High School and is an adjunct instructor for Concordia University-Nebraska.