Democrats continue to shoot themselves in the political foot over The Deficit
I still quote the late John Kenneth Galbraith all the time. Because he was an excellent writer and got an awful lot of things right.
One of his sons, Jamie Galbraith is also a prominent economist who among other things has done a lot of work on the nature and causes of economic inequality.
In a new, brief essay, he explains the background of the arcane mechanics of how Congress handles the budgeting process including the revenue estimates.1
Galbraith is sympathetic to some of the analysis of the Modern Monetary Theory (MMT) approach.
Here is a nine-minute clip from 2020 featuring Galbraith and MMT guru Stphanie Kelton2:
Without going into a lot of detail – oversimplifying, in other words – the MMT view recognizes that while the dollar still maintains its status as the world’s reserve currency, other countries hold lots of US dollars which count as part of the trade deficit. There is an accounting identity which observes that a country’s trade deficit or surplus equals the combined public and private domestic surplus or deficit. And the need of other countries to hold dollars means that the US trade balance will normally be negative (in deficit). That in turn means that only when the net private spending is in deficit, i.e. when companies in a given year invest more than make in profit by using their available savings, the private deficit will be negative, and only then will the public accounts have a net surplus.
That means that Congress’ spending decisions do not determine whether the federal budget is in deficit.
As Galbraith put it in a 2014 book:
[I]n a downturn, large public-sector deficits are inevitable. They are made so by the private sector's return to net saving. As lang as the private sector is anxious to build up financial assets and repair its balance sheets [instead of making new investments], private spending will be low and public deficits will be large. Policy makers can't do anything about this unless they can somehow change private-sector behavior. Otherwise public budget deficits have to be large enough to permit the financial accumulation - or deleveraging - that the private sector is determined to achieve.
lf public surpluses are unsustainable because of private debts, pub lic deficits have a different problem. Private markets have no problem with the public debt of large countries, but public policy makers do not tolerate them well. Policy makers generally don't see, don't think much about, and don't understand what is happening on the books of the private sector. They tend to think of public deficits as a policy instrument per se, something under their control, and for which they may be held to account. But if they act on this belief, cutting spending and raising taxes just at the time when the private sector wants more cash in its own packet, the private sector will respond by cutting back even more. The economy will collapse further. That is the dilemma of austerity policy.3 [my emphasis]
He writes in the current article:
The budget process cultivates and perpetuates the idea that smaller deficits are better than large ones. The platonic ideal is “balance” – that total spending and total tax revenue should be equal, in which case the federal government need not issue new debt. This goal is never achieved, except on very rare and always-transient occasions. But it sets a standard that tax cuts should be offset, at least in part, by spending reductions. [my emphasis]
Vice President Dick Cheney said in 2003, “Reagan proved that deficits don’t matter.” For once, Dark Lord Cheney was right. Politically, at least. Kelton herself says in the video that deficits can be a problem. They are just not the mythical fetish that US Republicans and Democrats have portrayed them to be.
But we’re still in the bizarre situation where Republicans whine about the deficit while they act on Cheney’s observation and blame the deficits on workers and poor people and Latino immigrants and lazy black people. And lately, also on lazy Medicaid freeloaders.
The Democrats, on the other hand, have literally spent decades trying to show how responsible they are by repeating Republican tropes about the deficits – mainly as an excuse on to raise taxes on billionaires. This is a major way that Democrats chronically fight against their own side. Or at least against their own constituents’ needs. For too many Democrats, their “side” is wealthy donors who would prefer not to have to pay taxes to support the government.
David Dayen in 2016 explained the scam this way:
As Cheney’s quote about Reagan shows, Republicans habitually ignore deficits when they obtain power. It’s a matter of convenience, a tempting way out of the fiscal responsibility trap that makes it difficult for politicians to keep their campaign promises. But every time a Bill Clinton or a Barack Obama gets the keys to the Oval Office, Republicans flip the script, generating a sudden fear of mountains of debt. Congressman Paul Ryan has been claiming the U.S. is about to turn into Greece for eight years. A deficit hawk industry in Washington comes alive to tell the nation that we’re broke. This creates practical constraints on liberal spending programs to help the poor and the elderly. …
Liberals have used the constraint of deficits while in power even more strongly than Republicans. The Obama White House has boasted that, since 2009, the deficit has fallen at the fastest rate since the end of World War II. In 2009, under Nancy Pelosi and Harry Reid, Congress instituted a “paygo” rule that forced all spending to be paid for, made progressive priorities in social programs more difficult to achieve, and allowed Republicans to demonize Democrats as the party of higher taxes.4
That PayGo nonsense was one of the worst ideas Democrats have ever had. This is why they have such trouble developing overall narratives to tie together their stances on policy issues: they’re too busy reinforcing the Republicans narratives with things like PayGo.
Galbraith explains how this completely economically unnecessary budget straitjacket function played out in the Big Ugly Budget Bill just passed:
There was never any policy reason to cut food assistance (SNAP) or Medicaid. They are efficient programs providing nutrition and health care to the most vulnerable Americans. They are popular and widely used in “red” states – Medicaid supports many rural hospitals, which may now be forced to close, and pays for millions in nursing homes, now threatened. They bear none of the stigma that was once associated with “welfare” – before Clinton “reformed” that. The only reason they were cut was to satisfy the arcane demands of the budget process.
The beast of deficit reduction is never sated. One faction in Congress held out for even more severe cuts, before falling in line at the last minute. This group consists largely of provincial politicians, brought up on the budget-balancing of towns, cities and states, which must match operating expenses to expected taxes. They have never understood – or tried to understand – why the federal government is different, and faces no similar practical constraint. But what were they promised in return for their votes on this bill? Very likely, that the next time the cuts will extend to Medicare and to Social Security – the last remaining bulwarks of middle-class security in the United States.
Worse, the perspective of this group was reinforced by Democrats – including two past Treasury secretaries, Robert Rubin and Lawrence Summers. Writing in The New York Times, they trumpeted the brief surpluses of the Clinton years, not mentioning that those surpluses led to the end-of-boom in 2000 and the recession of 2001 – a phenomenon once known to economists as “fiscal drag.”5 [my emphasis in bold]
Galbraith, James (2025): Time to Junk the Budget Process. Logos website 25:1-2. <https://logosjournal.com/between-the-issues/time-to-junk-the-budget-process/> (Accessed: 2025-16-07).
Stop Worrying About National Deficits. Bloomberg Technology YouTube channel 12/04/2020. (Accessed: 2025-16-07).
Galbraith, James (2014): The End of Normal: The Great Crisis and the Future of Growth, 86. New York: Simon & Schuster.
Dayen, David (2016): Donald Trump Is Right: Deficits Don’t Matter. The New Republic 05/11/2025. (Accessed: 2025-16-07).
Galbraith 2025, op. cit.