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In the good old days, America’s budget deficit yawned when the economy was weak and shrank when it was strong. It fell from 13% to 4% of gdp during Barack Obama’s presidency, as the economy recovered from the financial crisis of 2007-09. Today unemployment is at a 50-year low. Yet borrowing is rising fast. Tax cuts in 2017 and higher government spending have widened the deficit to 5.5% of gdp, according to imf data—the largest, by far, of any rich country.
It could soon widen even further. President Donald Trump is thought to want a pre-election giveaway. Fox News is awash with rumours of “Tax Cuts 2.0”. This month the Treasury announced it would issue a 20-year bond, which would lengthen the average maturity of its debt and lock in low interest rates for longer. All this is quite a change for many Republicans, who once accused Mr Obama of profligacy, but now say that trillion-dollar deficits are no big deal. Democratic presidential candidates, meanwhile, are talking about Medicare for All and a Green New Deal. A new consensus on fiscal policy has descended o
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