Pence on the Deficit


CNBC has a story headlined, “Vice President Pence defends deficit expansion under Trump as necessary for economic growth.”

The full interview is here. The deficit discussion starts around 3 minutes in and continues for 2 1/2 minutes. Pence does not say the deficit expansion was necessary or even aided economic growth. What he says is that raising economic growth was a more urgent than cutting the deficit.

We can interpret his comments two ways. One is the way CNBC (and many follow-on commenters under the influence of the headline) did: Pence is saying that there was an economic trade-off: We needed to raise the deficit to boost economic growth. Another is that there was a political trade-off: It wasn’t possible both to clamp down on the deficit and to advance pro-growth reforms politically, and growth was more important and so won out. (So, for example, Pence might think that it would have been better to couple tax reform with spending restraint but, because growth was so important and spending restraint so politically daunting, it was worth getting tax reform even without spending restraint.)

Has the increased deficit boosted economic growth? Many observers think so, but claims that it has usually ignore the question of how fiscal and monetary policy interact. If we hadn’t passed a tax cut partly financed through higher deficits, and then raised spending some more, presumably the interest-rate hikes of 2017 through 2018 wouldn’t have happened.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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