The Big Beautiful Budget Debate

Congratulations are in order to President Trump and the House GOP for passing their “big beautiful bill” Thursday morning. The budget battle on Capitol Hill is yet in its early innings, though, and there is already ferment on the right over how — or if — to curb federal overspending. What, too, of the scale of federal debt, and the future of America’s creditworthiness? Feature, say, the varying views of two of the Sun’s sages, Larry Kudlow and James Grant.The “stark reality” behind the budget debate, as the Wall Street Journal reported the other day, is that the bill brewing in Congress “won’t reduce federal budget deficits and would make America’s fiscal hole deeper.” Mr. Kudlow is among those on the right who fail to find fault with the fiscal infelicities of the GOP budget. “Deficit-Panicans Need To Stop Fearmongering — and Learn To Love Growth” is the headline yesterday on his Sun column.Mr. Kudlow argues that “we heard the same exact fearmongering” over earlier tax cuts under JFK, Reagan, Clinton, and even during Mr. Trump’s first term. Fears that deficits “will crowd out investment, drive up interest rates, and actually depress economic growth” are misguided. “Recessions bring down interest rates,” he explains, while booms raise them. Plus, strong economic growth reduces the need for welfare spending while boosting federal tax revenue.Plus, too, Mr. Kudlow avers, the currently high ratio of federal debt to economic output — approaching 100 percent and growing — is not necessarily perilous. He notes that “if you go back to the 1970s, the debt-to-GDP ratio was at nearly an all-time low of about 25 percent.” Yet that was the era of stagflation — which suggests that high federal debt, in itself, is not going to tank the economy. He concludes: “Let economic growth solve so many of our problems.”Mr. Grant is not as sanguine about Uncle Sam’s fiscal health, if the latest Interest Rate Observer is any guide. Secretary Bessent might have waved off Moody’s downgrade of America’s credit — “Who cares?” the guardian of the national fisc asked — “but no such charge can stick to Grant’s,” the Interest Rate Observer avers. As far back as the early 1980s Mr. Grant and the Interest Rate Observer were casting a wary eye on the soundness of the public credit.“What makes the government bond market unique,” Grant’s observed then, “is that nobody seems to worry about getting his money back.” The concern seemed to abate amid what Mr. Grant calls a “great bull bond market of 1981-2021,” which appeared to show that “deficits don’t matter.” Yet the doubts over federal debt are mounting a comeback, Grant’s notes, with a “70% year-to-date spike in the cost of insuring against” a federal default.The dollar today fetches less than a 3,200th of an ounce of gold. It’s a sign, Mr. Grant says, of how far America has strayed from the principles of “classical finance,” defined in part by “sound money,” but also a “balanced federal budget over the course of the business cycle.” Doubts over America’s fiscal health and credit are summed up by Mr. Grant’s conclusion in 1984. “A sovereign government can always repay,” he said. “The question is: With what kind of money?”

The Big Beautiful Budget Debate

The Big Beautiful Budget Debate

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