- Republican frontrunner mimics mantra of Modern Money Theory
- Unorthodox position could endure to draw contrast with Clinton
Donald Trump’s about-face on the relevance of a ballooning U.S. debt continues his campaign’s hallmark of zigging and zagging on policy issues, landing him now on economic proposals favored by economists to the left of Bernie Sanders.
The billionaire businessman has advocated for the federal government to take advantage of cheap interest rates by boosting spending on initiatives such as rebuilding infrastructure -- a position shared by traditional Keynesian economists and skewered by budget hawks who say his numbers won’t add up. Now, Trump’s post-Keynesian approach is throwing out budget balancing, and declaring American immunity to a default.
“This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, OK?” he said in an interview Monday on CNN.
That has exacerbated dislike of the candidate’s positions among the Republican establishment, while garnering new fans in a movement that even Sanders, a self-proclaimed Democratic socialist, has deemed too far to the left.
Trump spokeswoman Hope Hicks didn’t immediately respond to an e-mailed request for comment.
Modern Money Theory has gained converts amid sluggish global demand in recent years by arguing that while running up the deficit does eventually have limits, there’s plenty of room to spend without triggering inflation. Instead of worrying about balancing the budget, policy makers should focus on putting the unemployed back to work, for instance.
“This is a Nixon-goes-to-China moment,” Randy Wray, an economics professor at the Levy Economics Institute at Bard College in New York and one of the doctrine’s founders, said in an e-mail about Trump’s latest comments. There will be “a Republican far to the left of the Democratic party apparatus who wants to promote rising living standards of Americans.”
Wray said he expects Trump will continue a two-pronged theme of advocating for jobs and wage increases, while calming fears about the resulting deficits. And while he remains a Sanders supporter, Wray said he “wouldn’t hesitate to congratulate Trump where he deserves it,” and projects Democratic front-runner Hillary Clinton “would continue to bankrupt the nation,” primarily through budget-tightening.
Among Sanders’s economic advisers are some of the MMT school’s leading advocates, including Stephanie Kelton, who the Vermont senator hired at the Senate Budget Committee, and James K. Galbraith, whose father helped shape President Lyndon Johnson’s “Great Society” programs. But the candidate himself has disavowed MMT, adhering closely to a dollar-for-dollar budget accounting of his campaign proposals, even if his tax increases are unlikely to get through Congress.
The fast-changing nature of Trump’s comments on the economy and fiscal spending might pose a challenge to the durability of this strategy. Trump’s campaign website still features a less-than-30-second video in which he says the U.S. has to rid itself of $19 trillion in debt, which is “so totally unfair” to younger Americans.
Floating the option of printing more money as the national debt grows implies the U.S. economy would be in a deep crisis where investors balk at giving the government additional funds, said Douglas Holtz-Eakin, president of the Washington-based American Action Forum.
The mechanics of such an approach -- that the Federal Reserve would be directed to purchase the debt to facilitate Treasury’s payments on interest and principal -- also would reduce the Fed’s autonomy and play on another aspect of this election: some voters’ distrust of the central bank’s power, he said.
“That’s the definition of lack of Fed independence,” a “quite troubling” proposition, said Holtz-Eakin, a former director of the Congressional Budget Office and economic policy adviser to Republican John McCain’s 2008 presidential campaign. “I can’t imagine that we are so special that we can defy the laws of economics.”