Trump’s Big Beautiful Debt Bomb

The budget bill is both devastatingly cruel and deeply irresponsible

Do readers remember the debt panic of the early Obama years? For a while scare stories about national debt dominated discussion in the media and inside the Beltway.

.I got a lot of grief at the time for bucking that consensus, urging people to relax about government debt. The United States, I argued, had lots of “fiscal space” — ability to run up debt without losing investor confidence — so it should focus instead on the importance of restoring full employment, which required running substantial deficits.

These days, however, many though not all of the people who were screaming about debt back then have gone quiet. Funny how that happens when there’s a Republican in the White House.

Yet there is much more reason to be worried about debt now than there was then. On one side, there’s no longer any good economic reason to be running large deficits. On the other, America has changed in ways that have greatly reduced our fiscal space, our ability to get away with a high level of debt.

And the One Big Beautiful Bill Act, which just passed the Senate and will probably pass the House, will make things even worse.

Why was I relatively relaxed about debt back in the day? Largely because history tells us that advanced nations can normally run up large debts without experiencing crises of confidence that send interest rates soaring.

Look, for example, at the debt history of the UK, which ran up huge debts relative to GDP during the Napoleonic Wars and the two world wars without losing investor confidence:

Why are advanced countries normally able to pull this off?

First, they’re normally run by serious people, who don’t try to govern on the basis of crackpot economic doctrines and will take responsible action if necessary to stabilize their nations’ debt.

Second, they’re competent: They have strong administrative states that can collect a lot of tax revenue if necessary. The United States collects 25 percent of GDP in taxes, but could collect much more if it chose. Some European nations collect more than 40 percent.

These factors normally lead investors to give advanced countries the benefit of the doubt, even when they run big deficits. That is, investors assume that the people running these countries will take action to rein in debt once the emergency justifying deficits ends, and that they will be able to take effective action because they have effective governance.

And that’s why I was a deficit dove in, say, 2011. America needed to run substantial deficits to recover from the 2008 financial crisis. But I didn’t think this would cause trouble down the road, because we were a serious country run by serious people, easily able to do what was necessary to stabilize the debt once the economic emergency was past.

But that, as I said, was then.

Right now we are running big budget deficits even though we aren’t fighting a war, facing high unemployment, or dealing with a pandemic. We should be taking action to bring those deficits down. Instead, Republicans have rammed through the One Big Beautiful Bill Act, which will add trillions to the deficit even as it causes mass misery. Money aside, the way Congress was bullied into passing that bill and the lies used to sell it show that we are no longer a serious country run by serious people.

Republicans are using transparently dishonest accounting to hide just how much they’re adding to debt — hey, we aren’t really cutting taxes, just extending tax cuts that were scheduled to expire. And they’re also claiming that the OBBBA’s tax cuts (the ones that they say aren’t really happening) will generate a miraculous surge in economic growth. I’ve had my differences with the Committee for a Responsible Federal Budget, but it’s an honest, highly competent think tank, and its (appropriately) incredulous analysis of Trump officials’ economic projections is titled “CEA’s fantastical economic assumptions.”

Add in Trump’s bizarro claims about what his tariffs will achieve. Again, do we look like a serious country run by serious people?

Moreover, mass deportation and incarceration of immigrants, aside from being a civil liberties nightmare, will inflict severe economic damage and significantly worsen our debt position.

Finally, how long will we have an effective government that can collect taxes when necessary? Elon Musk’s DOGE failed to find significant amounts of waste, fraud and abuse, but it did degrade the functioning of the federal government and demoralize hundreds of thousands of civil servants. Republicans have done all they can to eviscerate the IRS and make tax evasion great again. Even if control of the government is eventually returned to people who want to govern the country rather than pillage it, it will take years to recover competence in tax collection and other mundane government functions, which we used to take for granted.

The falling dollar is an indication that foreign investors are losing faith in America. But I don’t think they fully realize, even now, that the risk of a U.S. debt crisis is vastly higher now than it was when Republicans were yelling about Obama’s deficits.

MUSICAL CODA