“But How Do We Pay for It?” Why Spending Money on Ambitious New Programs Is a Feature—Not a Bug—in Today’s Economy

October 8, 2019

Our nation is faced with once-in-a-generation challenges—widespread inequality, alarming climate change, crumbling infrastructure, and crippling household debt, among others—that can only be addressed with bold, progressive policies, many of which require significant government spending.

Although some policymakers and candidates have proposed such policies, they often get pushback from skeptics asking, “Can the government really afford these programs?

The simple answer is yes. Given our current economic conditions, increased public spending and borrowing by the government is not a problem to be explained away; in fact, it is a desirable feature of policymaking that can both help our economy reach its full potential and enable policymakers to overcome today’s challenges.

A growing number of economists are challenging the conventional economic wisdom that higher government spending, especially when financed through debt, is harmful for the economy. The idea that “we cannot afford more government debt,” if it’s needed to meet national priorities, is based on outdated analyses that ignores the economic realities of our time. Despite headline numbers suggesting some indicators of a “good economy,” we are currently experiencing a long-term economic slump, reflected in persistently low interest rates and inflation as well as weak demand. A recession might very well loom on the horizon. In this economic climate, the risks of deficit spending are far lower than previously assumed, while the benefits may be much greater. Low interest rates mean little risk of out-of-control debt or inflation. Meanwhile, more government spending offers the specific benefits of stimulating demand, spurring business investment, and even moderating future recessions.

In short, our current economy stands only to benefit from increased public spending. Therefore, it should be seen as a feature—not a bug—of future economic policymaking.