PF Jan 2019 - Reducing Federal Debt vs Economic Growth - Con

Resolved: The United States federal government should prioritize reducing the federal debt over promoting economic growth.

Con Position

For the Con, I foresee several paths. While the Pro side of this debate must defend the resolution by prioritizing debt reduction, the Con can flip that and claim economic growth should have the higher priority. But a very reasonable position for the Con is simply, neither should be prioritized and this would be a perfectly valid contrary position. How does this work? Pro has a major problem, in my opinion (speaking strictly now, as a Con debater). It speaks of a tipping point, but it does not quantify it in any way. As a ratio of GDP the national debt was bigger in 1946-7 following WWII and the economy did not collapse. Moreover, the fact we are dealing with the U.S. eliminates a lot of international models, because the economies of other countries cannot serve as examples since none of these have an economy as huge, diverse and resilient as the U.S. For this reason, while the current deficit or debt numbers sound 'scary' there is no evidence they mean disaster is imminent. We may be able to sustain a growth-leads-to-debt-reduction strategy for decades and by taking some reasonable steps toward reducing spending or altering the tax structure we can further lower the deficits and bring down debt. So it does not mean ignoring the debt in favor a full-on effort to increase growth, rather it means relying on the strength of the U.S. economy to do both.

The Case For Growth

First and foremost we look to economic growth as a means to enable our nation to better face the challenges of an increasingly diverse, interconnected, and dangerous world. Our country needs to be strong in all sectors to successfully face these challenges and economic growth is a key to policy flexibility.

Hackbarth 2017:

But a new era is coming to Washington. As U.S. Chamber President and CEO Tom Donohue said at the State of American Business address, “We see a once-in-a-generation opportunity to enact major reforms that could transform the American economy from a low-growth to a high-growth economy.” "It’s very clear what our nation’s top priority must be: to restore our country to vigorous economic growth in order to expand jobs, incomes, and opportunities for all Americans," Donohue declared. Faster economic growth not only creates more good-paying jobs and boosts wages, it brings in more tax revenue allowing us to improve our infrastructure, invest in education, and support a strong national defense. More growth gives the government the must-needed flexibility to reform our entitlement programs and stabilize federal spending. Maybe most important, faster growth instills hope and revives belief in the American Dream that has been lost for too many Americans. Economic growth can’t solve all our country’s problems, but without it we won’t be able to solve any of them. In order to grow the economic pie, every policy proposal—whether it is covers regulations, trade, energy, infrastructure, entitlement programs, education, taxes, or legal issues--must be judged on whether it will support or impede growth.

Over the last century we have, on average, maintained a fairly steady growth of more than 3%. Following the economic collapse of 2008, Obama's policies put us on a much slower rate of growth. The current government policies with a renewed focus on growth and deregulation can put us back on track, and one key benefit will be lower debt.

Moore 2017:

The point of the Trump tax cut is to get more jobs, higher wages, and growth. America needs real and sustained growth of 3 or 4 percent — up from the abysmal 1.9 percent growth of the Obama years — which the Congressional Budget Office now says is the course we are on for decades to come. Nonsense. This 1.9 percent growth scenario is one-third below the historical average for the U.S. economy of 3.4 percent from 1950 — 2000. Professor Robert Barro of Harvard told the House Small Business Committee recently that the average annual growth rate for the last century has been about 3.2 percent. See chart. If we can achieve 3.4 percent growth for the coming decade, then we lower the deficit by roughly $4.5 trillion over the decade. That is the best “pay for” I ever heard. As JFK used to put it, we need a budget that is balanced through growth and prosperity. A 3 percent-plus growth rate also means that the debt as a share of GDP goes down every year and eventually falls to its lowest level since the 1970s. The trillions of dollars of unfunded liabilities in Medicare and Social Security wouldn’t disappear entirely, but they would become very manageable to deal with.

Solvency

Over the last decade, the national debt has increased mainly as a result of the continuation of the war on terror during the 2008 collapse of the global economy and the ensuing period of recovery. The conservative fiscal policies of the Obama administration contributed to the steady rise of the federal debt. Promoting economic growth is the least painful way to reduce the federal debt, if indeed it is perceived as a problem in the first place.

CRFB 2013:

Faster economic growth can help improve debt projections in at least two ways. First, faster growth produces more revenue -- enough to result in $315 billion of deficit reduction for every 0.1 percentage point increase in the annual growth rate. But in addition, faster growth increases the economy's capacity to carry debt. Thought of another way: when we measure debt as a share of GDP, a higher GDP can help lower debt-to-GDP the same as lower nominal debt levels can lower the ratio. As a result, even small improvements in growth can help slow debt accumulation. If growth were 0.1 percentage point higher annually, for example, debt levels would reach 71 percent of GDP by 2023, compared to 73 percent under the CRFB Realistic Baseline. Even just a faster economic recovery that brings GDP back to its potential sooner would bring debt levels to 72 percent of GDP by 2023. Still, it would take a pretty significant improvement in growth to put the debt on a clear downward path as we have called for in the past. In fact, by our estimates, doing so would require the economy to grow nearly 0.5 percentage points faster each year. This would mean annual productivity growth nearly 40 percent faster than what is projected and inconsistent with what most analysts think could be generated through government policy changes alone. Even under this scenario, CBO expects that debt would bottom out in the mid-2020s and begin to rise again thereafter.

And prioritizing economic growth not only improves the debt, it puts people back to work which impacts the bottom line of those who struggled to find employment and personal economic security.

Rivlin 2013:

This hearing is called: “Flirting with Disaster: Solving the Debt Crisis” I would like to suggest an alternative title: “Avoiding Disaster: Growing the Economy and Stabilizing the Debt.” I make this suggestion because I believe strongly that future American prosperity requires bipartisan cooperation to achieve two goals at once:

• Faster economic growth that will create more jobs and bring the unemployment rate steadily down at least to the 5-6 percent range.

• A sustainable long-run budget plan that will halt the projected rise in the debt/GDP ratio and put it on a downward trajectory by the end of the decade.

The two goals reinforce each other and neither can be achieved without the other. Weak economic growth—or worse, sliding back into recession—will reduce revenues and make it much harder to reduce or even stabilize the ratio of debt to GDP. But the prospect of debt growing faster than the economy for the foreseeable future reduces consumer and investor confidence, raises a serious threat of high future interest rates and unmanageable federal debt service, and reduces likely American prosperity and world influence.

And even if you don't buy the fact that economic growth is the answer to high deficits and debt to GDP ratio we contend there is no evidence we are on the brink of a tipping point. In fact, the evidence shows we can continue to grow the economy in spite of a large debt to GDP ratio.

Irons & Bivens 2010:

The larger research effort undertaken by Reinhart and Rogoff to gather data on debt and growth across countries and time has yielded many valuable insights. However, the shakiest inference from this research effort—the claim that there is a well-defined ratio of debt to GDP above which economic growth suffers—has dominated discussion of this work both in the media and in policymaking circles.  This paper has shown that there is no compelling reason to believe the most frequently cited claim from GITD [Report: "Growth in a Time of Debt" = GITD] that gross debt of about 90% will necessarily lead to slower economic growth. In fact, there is little in economic theory, or in the data presented for the United States, that supports this proposition. While we do believe that projected unsustainable deficits in coming decades should be addressed, there is no solid evidence that we are approaching a tipping point. In fact, the greatest threat to economic growth is policy inaction fueled by deficit fears.

Jobs through economic expansion is the direct benefit. Full employment, like we are beginning to see now, benefits all of the tax-paying citizens of the United States and is reason alone to vote Con.

Impacts

The impact is flexibility for policy-makers and citizens arising from promotion of economic growth. America's economic success can help support major advantages and mitigate global issues.

Climate change -

Bailey 2018:

Horgan, Pinker, and Boisvert are all essentially endorsing what I have called "the progress solution" to climate change. As I wrote in 2009, "It is surely not unreasonable to argue that if one wants to help future generations deal with climate change, the best policies would be those that encourage rapid economic growth. This would endow future generations with the wealth and superior technologies that could be used to handle whatever comes at them including climate change." Six years later I added that that "richer is more climate-friendly, especially for developing countries. Why? Because faster growth means higher incomes, which correlate with lower population growth. Greater wealth also means higher agricultural productivity, freeing up land for forests to grow as well as speedier progress toward developing and deploying cheaper non–fossil fuel energy technologies. These trends can act synergistically to ameliorate man-made climate change."

Poverty -

Ferrara 2012:

Such sustained, rapid economic growth is the ultimate solution to poverty.  It was economic growth in the last century that reduced U.S. poverty from roughly 50% in 1900, and 30% in 1950, to 12.1% in 1969.  Among blacks, poverty was reduced in the 20th century from 3 in 4 to 1 in 4 through economic growth.  Child poverty of 40% in the early 1950s was also reduced by half.  It was economic growth that made the elimination of child labor possible as well. The living standards of the poor in America today are equivalent to the living standards of the middle class 35 years ago, if not the middle class in Europe today.  With sustained, vigorous economic growth, 35 years from now the lowest income Americans will live at least as well as the middle class of today. If real compensation growth for the poor can be sustained at just 2% a year, after just 20 years their real incomes will increase by 50%, and after 40 years their incomes will more than double.  If pro-growth economic policies could raise that real compensation growth to 3% a year, after just 20 years their real incomes would double, and after 40 years it would triple.  That is the most effective anti-poverty program possible.

Global hegemony -

Frankel 2001:

I mentioned early on that size is an advantage. This goes beyond the absolute size of the internal market. Being the largest economy in the world also has some other advantages. It is not entirely obvious that the United States should have more influence in international markets or international politics than the EU, which after all is larger in the aggregate. But I think it is clear that our foreign policy ends up carrying more weight in the world than anybody’s. So far, the Fed’s interest rate moves carry somewhat more weight than the ECB’s interest rate moves. So far, the dollar is a more important international currency than the euro.

For all these reasons and more, we urge a Con ballot.



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Sources:

Bailey, R (2018),  Climate Change Problems Will Be Solved Through Economic Growth, Reason, Mar 12, 2018. https://reason.com/blog/2018/03/12/climate-change-problems-will-be-solved-t


CRFB (2013), Could Faster Growth Solve Our Debt Woes? Comittee for a Responsible Federal Budget, Oct 28, 2013. http://www.crfb.org/blogs/could-faster-growth-solve-our-debt-woes


Ferrara, P (2012), Economic Growth, Not Redistribution, Most Benefits The Poor, Working People, And The Middle Class, Forbes, Nov 15, 2012. https://www.forbes.com/sites/peterferrara/2012/11/15/economic-growth-not-redistribution-most-benefits-the-poor-working-people-and-the-middle-class/#67b6ebb512e0


Frankel, JA (2001),  Economic Advantages of America, Harvard University, 2001   https://sites.hks.harvard.edu/fs/jfrankel/ViennaUSrev523.pdf


Hackbarth, S (2017), Why Faster Economic Growth Must Be America's Top Priority, U.S. Chamber of Commerce, Jan 11, 2017. https://www.uschamber.com/series/above-the-fold/why-faster-economic-growth-must-be-americas-top-priority


Irons, J; Bivens, J (2010), Government Debt and Economic Growth, Economic Policy Institute, July 26, 2010. https://www.epi.org/publication/bp271/


Moore, S (2017), 'All you need is growth', The Washington Times, Apr 30, 2017. https://www.washingtontimes.com/news/2017/apr/30/economic-growth-will-lower-the-deficit/


Rivlin, AM (2013), Growing the Economy and Stabilizing the Debt, The Brookings Institute, March 14, 2013. https://www.brookings.edu/testimonies/growing-the-economy-and-stabilizing-the-debt/