NCPA Senior Fellow Says Bush Deficits Will Have "Trivial Impact on Interest Rates"
WASHINGTON, D.C. (February 7, 2003) — In testimony today before a joint hearing of the House and Senate Democratic Policy Committees, National Center for Policy Analysis (NCPA) Senior Fellow Bruce Bartlett refuted the argument that increased deficits would raise interest rates. The hearing, which only involved Democratic Members from the House and Senate, was designed to paint the Bush Administration's budget as fiscally irresponsible.
The following are excerpts from Bartlett's prepared testimony:
"…deficits are very exaggerated in terms of their economic impact. All things being equal, a rise in deficit spending will raise interest rates to some degree. However, all other things are not equal. …simply saying deficits will raise interest rates tells us nothing about the order of magnitude. …deficits have a very small – and much overrated – impact."
"Knowing with certainty how interest rates will move in the future is information upon which a great deal of money can be made very quickly. No one ever gets it right consistently. Certainly, any investor looking solely at federal borrowing … would have lost his shirt over the last 20 years."
"In the 1980's, budget deficits rose to levels unprecedented in peacetime. Common sense would have indicated that interest rates would rise sharply. In fact, they fell sharply."
"I have trouble believing that the federal budget deficits projected by President Bush in his 2004 budget will have more than a trivial impact on interest rates. As a share of GDP, they will peak at a rate half as high as that achieved in the 1980s, and half that existing in Japan today, where interest rates are actually negative."
"Furthermore, many of the tax initiatives proposed by President Bush will unquestionably raise private saving by both households and businesses."
"…tax cuts of the sort that President Bush has proposed can be viewed as investments in our nation's productive capacity. I believe that they will pay dividends not only in terms of higher growth and living standards, but also in terms of federal revenue."