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Justin Fox

The Secret to the Trump Economy? More Government Spending

Economic growth has accelerated. Maybe it’s because Republicans have stopped caring about the deficit.


Photographer: Mandel Ngan/AFP/Getty Images

As you’ve probably heard, House Democrats have cut a two-year budget deal with Senate Republicans and President Donald Trump to suspend the federal debt ceiling and increase federal spending by $320 billion. The debt ceiling is an arbitrary and possibly counterproductive construct, while the spending increases aren’t all that big if you assume that inflation will continue at about 2% a year, and may not even represent increases in federal spending’s share of gross domestic product. Long-run concerns about the burgeoning federal debt left aside — since almost everybody seems to be leaving them aside these days — this seems like a reasonable enough deal.

It’s a big contrast, though, from what happened in budget negotiations during the six years of this economic cycle when Republicans ran the House of Representatives and a Democrat was in the White House. From 2011 through 2016 there were repeated threats of a debt default due to House Republican opposition to raising the debt ceiling, and budget sequestration that helped bring on a three percentage point decline in federal spending’s share of GDP. Coupled with belt-tightening at the state and local level, this resulted in an impact on real GDP growth of negative 0.5 percentage points a year, according to the quarterly fiscal impact calculations of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy.