Government spending 'reducing the national debt’ and ‘not inflationary': Is Nancy Pelosi right?
- On March 11, 2022, at the House Democratic Issues Conference, Speaker Nancy Pelosi stated, “When we’re having this discussion [about national debt], it’s important to dispel some of those who say, well, ‘Is the government spending’—no, it isn’t. The government spending is doing the exact reverse, reducing the national debt. It is not inflationary.”
- On March 8, 2022, President Biden placed a ban on Russian oil and energy imports with Britain issuing a phase-out ban by the end of 2022. Since Russia’s invasion of Ukraine, oil prices have risen over 30%.
- According to Forbes, prices of food, gas, and shelter have been rising since January 2022, but the “Russian invasion of Ukraine caused oil prices to surge.”
- The annual inflation rate reached 7.9% in February 2022, the highest since 1982, with gasoline, shelter, and food as the largest contributors.
- The US national debt was over $30 trillion in February 2022, which was $2.39 trillion more than the year before. Even with policy changes, the debt is only expected to increase over the next decade.
Nancy Pelosi recently claimed government spending does not increase the national debt, nor is it causing inflation. Inflation is at a 40-year high. So, as the Democrats control the White House and Congress, Nancy Pelosi and her fellow Democrats must look elsewhere to try to place blame and divert attention rather than consider their own policies as the culprits. Putin is the first choice.
Denying reality seems to be number two. The federal government has printed more than $6 trillion since early 2020 to pay for pandemic stimulus bills. That stimulus would not have been necessary if the government had not forced businesses to close, putting people out of work. Simple math indicates that spending more than $6 trillion that the government does not have only adds to the debt; it does not reduce it.
It should be noted that inflation hit the 40-year high well before Putin sent Russian troops into Ukraine. The Congressional Budget Office (CBO) analysis of Biden's Build Back Better plan assessed it would add $367 billion to the deficit over the next decade. In addition, the San Francisco Federal Reserve Bank analysis determined the $1.9 trillion coronavirus relief package that President Biden signed in 2021 played a role in the increase in inflation.
As interest rates rise, that adds to the national debt, which recently hit $30 trillion. A one percentage point increase in interest rates translates into a $30 trillion increase in interest costs on the national debt. Pelosi's math may work in this alternate universe Democrats have created, but not in the real world, where reality resides.
Nancy Pelosi's argument that government spending can help reduce national debt is correct; this is best explained by the most basic model of economics 101. If a farmer invests in seeds, soil, equipment, land and a lot of water, there will be high costs and waste along the way. However eventually those seeds will grow and multiply returning their initial investment, and much more. Government spending is the same, it just depends greatly on how the money is spent.
For example, where there is inflation, it is usually accompanied by lower unemployment. So government spending must focus on how to counter it. The US government and Nancy Pelosi can achieve their mission as long as they focus on domestic programs that help lower national debt and improve job opportunities. The name of the game is to make the country self-reliant and less dependent on others. This means focusing the investments on childhood education, tackling poverty, building the infrastructure, training the workforce, providing child care, lowering healthcare costs, boosting taxes on the rich and corporations, and not continuing to give away billions in fraudulent COVID aid to healthy people who wish not to work. Creating more jobs and businesses will also lead to more tax revenue which will help reduce the national debt.
One must understand that government spending to reduce inflation is not an overnight endeavor with immediate results. The effects of government spending may take 2-10 years to become visible—it is a long-term investment. The key is to make sure that the money is spent wisely and not just enriching government coffers and politicians who supported the bill.