Increased Deficits Will Not Raise Interest Rates
February 10, 2003
Increased deficits will not raise interest rates, says Bruce Bartlett, a senior fellow with the National Center for Policy Analysis (NCPA). In testimony last week before a joint hearing of the House and Senate Democratic Policy Committees, Bartlett disputed Democratic claims that the Bush Administration's budget is fiscally irresponsible.
In Bartlett's view, deficits have a very small, and much overrated, impact on interest rates.
- All things being equal, a rise in deficit spending will raise interest rates to some degree; however, all other things are not equal.
- No one knows with certainty how interest rates will move in the future -- any investor looking solely at federal borrowing would have lost his shirt over the last 20 years.
- In the 1980s, budget deficits rose to levels unprecedented in peacetime -- common sense would have indicated that interest rates would rise sharply, when in fact they fell sharply.
- Furthermore, many of the tax initiatives proposed by President Bush will 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 because they will pay dividends not only in terms of higher growth and living standards, but also in terms of federal revenue.
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