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Ignored for Years, a Radical Economic Theory Is Gaining Converts


Sunday, March 13, 2016

In an American election season that’s turned into a bonfire of the orthodoxies, one taboo survives pretty much intact: Budget deficits are dangerous.

A school of dissident economists wants to toss that one onto the flames, too.

It’s a propitious time to make the case, and not just in the U.S. Whether it’s negative interest rates, or helicopter money that delivers freshly minted cash direct to consumers, central banks are peering into their toolboxes to see what’s left. Despite all their innovations, economic recovery remains below par across the industrial world…

Bill Hoagland, a Republican who’s senior vice president of the Bipartisan Policy Center, has helped shape U.S. fiscal policy over four decades at the Congressional Budget Office and Senate Budget Committee.

He says a farm upbringing in Indiana helped him understand why “it’s engrained in a number of Americans outside the Beltway that you equate your expenditures with your revenue.” He also acknowledges that government deficits are different, and could be larger now to support demand, so long as there’s balance in the longer term.

Most of all, Hoagland says he sees profound change under way. The “catastrophic event” of the 2008 crash may be reshaping American politics in a way that’s only happened a handful of times before. And economic orthodoxy has taken a hit too.

“We’re going through a very strange period where all economic theories are being tested,” he said.