Spending Disad Supplement – HSS 2017

NotesThesis: The current debt-to-GDP ratio is at 77 percent. The aff either (1) spends a lot of money or (2) creates a spillover to other spending that increases the debt-to-GDP ratio significantly. A debt-to-GDP ratio above 90 percent would lead to very bad things happening to the economy. That is bad.

DTGR – Debt-to-GDP ratio

Negative

1NC

1NC Shell (DTGR)The CBO estimates the Debt-to-GDP ratio to be 77% - trump’s budget doesn’t cause the ratio to reach a unsustainable levelBartash 7-13 – Jeffry Bartash, reporter for MarketWatch in Washington, July 13, 2017("CBO says Trump budget won’t eliminate U.S. deficits," MarketWatch, http://www.marketwatch.com/story/cbo-says-trump-budget-wont-eliminate-us-deficits-2017-07-13, Accessed 07-13-2017, JD)

A congressional watchdog that’s done its own math on the Trump administration’s proposed budget says the White House plan won’t cut the deficit nearly as much as promised.

The Congressional Budget Office estimates the annual U.S. deficit would total around $720 billion in 2027 instead of being eliminated as promised by President Donald Trump.

The difference between the CBO and the White House projections stem largely from a disagreement about how fast the economy will grow and how much taxes will be collected from 2018 to 2027.

Earlier this year, Trump released a 2018 plan that aimed to balance the federal budget by 2027 and reduce the share of the national deficit relative to the size of the U.S. economy. The White House had asserted its plan would cut the debt-to-GDP ratio to 60%.

The CBO said the national debt, as a percentage of GDP, would rise to 80% by 2027 under Trump ’s plan from about 77%.

Still, the Trump administration’s budget would likely result in lower deficits and a less burdensome national debt compared to the current trajectory of the federal budget. In other words, the Trump plan is more fiscally sound vs. the alternative of leaving the budget on autopilot.

The debt-to-GDP ratio, for instance, would rise to 91% a decade from now absent any major changes in government spending and revenue collection, the CBO predicts.

After the CBO “score” came out, the White House chose to focus on the agency’s acknowledgment that the Trump budget would sharply reduce deficits.

“We are thrilled that CBO confirms that the president’s proposed budget resulted in the largest deficit reduction they have ever scored,” said Meghan Burris, spokeswoman at the Office of Management and Budget. “CBO agrees that this is the largest deficit reduction package in American history.”

The CBO said the Trump budget would cut the deficit by $3.3 trillion over 10 years — a still-large sum though below the White House’s own $5.6 trillion projection.

The Trump White House has been highly critical of the CBO’s economic projections early in the administration, pointing to past miscalculations by the nonpartisan agency.

The CBO carries a lot of weight in Washington, however, and its assessment of the Trump budget plan won’t give Congress any reason to embrace a budget proposal that was probably going to be largely ignored. Congress has frequently disregarded White House budgets from presidents of both parties.

Education spending and regulation crush sustainable growth – empirics and laundry list of studies – private sector crowd out, negative impact on BOP, reduced motivation to produce from taxed, subsidized inefficient practices, over-consumption, and insensitivity to prices – arguments about savers and increased demand are wrongRiedl 8 – Brian M. Riedl, senior fellow at the Manhattan Institute focusing on economic policy, previous staff director of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth, previous chief economist to Senator Rob Portman, previous director of budget and spending policy on Marco Rubio’s presidential campaign, served as the Heritage Foundation’s lead research fellow on federal budget and spending policy for ten years, master’s degree in public affairs from Princeton, 2008 (“Why Government Spending Does Not Stimulate Economic Growth,” The Heritage Foundation, 11-12, Available Online at http://www.heritage.org/budget-and-spending/report/why-government-spending-does-not-stimulate-economic-growth, Accessed 06-21-2017, HK)

In a throwback to the 1930s and 1970s, Democratic lawmakers are betting that America's economic ills can be cured by an extraordinary

expansion of government. This tired approach has already failed repeatedly in the past year, in which Congress and the President:¶ Increased total federal spending by 11 percent to nearly $3 trillion;¶ Enacted $333 billion in "emergency" spending;¶ Enacted $105 billion in tax rebates; and¶ Pushed the budget deficit to $455 billion in the name of "stimulus."¶ Every one of these policies failed to increase economic growth. Now, in addition to passing a $700 billion financial

sector rescue package, lawmakers have decided to double down on these failed spending policies by proposing a $300 billion economic stimulus bill. Even though the last $455 billion in Keynesian deficit spending failed to help the economy , lawmakers seem to have convinced themselves that the next $300 billion will succeed.¶ This is not the first time government expansions have failed to produce economic growth. Massive spending hikes in the 1930s, 1960s, and 1970s all failed to increase economic growth rates. Yet in the 1980s and 1990s -when the federal government shrank by one-fifth as a percentage of gross domestic product ( GDP)-the U.S. economy enjoyed its greatest expansion to date.¶

Cross-national comparisons yield the same result. The U.S. government spends significantly less than the 15 pre-2004 E uropean Union nations, and yet enjoys 40 percent larger per capita GDP, 50 percent faster economic growth rates, and a substantially lower unemployment rate.[1]¶ When conventional economic wisdom repeatedly fails, it becomes

necessary to revisit that conventional wisdom. Government spending fails to stimulate economic growth because every dollar Congress "injects" into the economy must first be taxed or borrowed out of the economy. Thus, government spending

"stimulus" merely redistributes existing income, doing nothing to increase productivity or employment, and therefore nothing to create additional income. Even worse, many federal expenditures weaken the private sector by directing resources toward less productive uses and thus impede income growth.¶ The Myth of Spending

as "Stimulus"¶ Spending-stimulus advocates claim that government can "inject" new money into the economy, increasing demand and therefore production. This raises the obvious question: Where does the government acquire the money it pumps into the economy? Congress

does not have a vault of money waiting to be distributed: Therefore, every dollar Congress "injects" into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to

another.[2]¶ Spending-stimulus advocates typically respond that redistributing money from "savers" to "spenders" will lead to additional spending. That assumes that savers store their savings in their mattresses or elsewhere outside the economy. In reality, nearly all Americans either invest their savings by purchasing financial assets such as stocks and bonds

(which finances business investment), or by purchasing non-financial assets such as real estate and collectibles, or

they deposit it in banks (which quickly lend it to others to spend). The money is used regardless of whether people spend or

save.¶ Government cannot create new purchasing power out of thin air. If Congress funds new spending with taxes, it is simply redistributing existing income. If Congress instead borrows the money from domestic investors, those

investors will have that much less to invest or to spend in the private economy. If Congress borrows the money from foreigners, the balance of payments will adjust by equally reducing net exports, leaving GDP unchanged. Every dollar Congress spends must first come from somewhere else.¶ This does not mean that government spending has no economic impact at all. Government spending often

alters the composition of total demand, such as increasing consumption at the expense of investment.¶ More importantly, government spending can alter future economic growth. Economic growth results from producing more goods and services

(not from redistributing existing income), and that requires productivity growth and growth in the labor supply. A government's impact on economic growth is, therefore, determined by its policies' effect on labor productivity and labor supply.¶ Productivity growth requires increasing the amount of capital, either material or human, relative to the amount of labor employed. Productivity growth is facilitated by smoothly functioning markets indicating accurate price signals to which buyers and sellers, firms and workers can respond in flexible markets. Only in the rare instances where

the private sector fails to provide these inputs in adequate amounts is government spending necessary. For instance, government spending on education, job training, physical infrastructure, and research and development can increase long-term productivity rates - but only if government spending does not crowd out similar private spendin g , and only if government spends the money more competently than businesses, nonprofi t organizations, and private citizens . More specifically, government must secure a higher long-term return on its investment than taxpayers' (or investors lending the government) requirements with the same funds.

Historically, governments have rarely outperformed the private sector in generating productivity growth.¶ Even when government spending improves economic growth rates on balance, it is necessary to differentiate between immediate versus future effects. There is no immediate stimulus from government spending, since that

money had to be removed from another part of the economy. However, a productivity investment may aid future economic growth, once it has been fully completed and is being used by the American workforce. For example, spending on energy itself does not improve economic growth, yet the eventual

existence of a completed, well-functioning energy system can. Those economic impacts can take years, or even decades, to occur.¶ Most government spending has historically reduced productivity and long-term economic growth due to : [3]¶ Taxes. Most

government spending is financed by taxes, and high tax rates reduce incentives to work, save, and invest-resulting in a less motivated workforce as well as less business investment in new capital and technology. Few government expenditures raise productivity enough to offset the productivity lost due to taxes;¶ Incentives. Social spending often reduces incentives for productivity by subsidizing leisure and unemployment. Combined with taxes, it is clear that

taxing Peter to subsidize Paul reduces both of their incentives to be productive, since productivity no longer determines

one's income;¶ Displacement. Every dollar spent by politicians means one dollar less to be allocated based on market forces within the more productive private sector. For example, rather than allowing the market to allocate investments, politicians

seize that money and earmark it for favored organizations with little regard for improvements to economic efficiency; and¶ Inefficiencies. Government provision of housing, education , and postal operations are often much less efficient than the private sector. Government also distorts existing health care and education markets by promoting third-party payers , resulting in over-consumption and insensitivity to prices and outcomes. Another example of inefficiency is when politicians

earmark highway money for wasteful pork projects rather than expanding highway capacity where it is most needed.¶ Mountains of academic studies show how government expansions reduce economic growth:[4]¶ Public Finance Review reported that

"higher total government expenditure, no matter how financed, is associated with a lower growth rate of real per capita g ross st ate p roduct ."[5] ¶ The Quarterly Journal of Economics reported that " the ratio of real government consumption expenditure to real GDP had a negative association with growth and investment," and "growth is inversely related to the share of government consumption in GDP, but insignificantly

related to the share of public investment."[6] ¶ A Journal of Macroeconomics study discovered that "the coefficient of the additive terms of the

government-size variable indicates that a 1% increase in government size decreases the rate of economic growth by 0.143%."[7] ¶ Public Choice reported that "a one percent increase in government spending as a percent of GDP (from, say, 30 to

31%) would raise the unemployment rate by approximately . 36 of one percent (from, say, 8 to 8.36 percent)."[8]¶ Economic

growth is driven by individuals and entrepreneurs operating in free markets, not by Washington spending and regulations. The outdated idea that transferring spending power from the private sector to Washington will expand the economy has been thoroughly discredited, yet lawmakers continue to return to this strategy. The U.S. economy has soared highest when the federal government was shrinking, and it has stagnated at times of government expansion. This experience has been paralleled in Europe, where government expansions have been followed by economic decline. A strong private sector provides the nation with strong economic growth and benefits for all Americans.

A high debt-to-GDP ratio of 90% causes economic downturns and slow growthSalim Furth 13, Senior Policy Analyst in Macroeconomics in the Center for Data Analysis at The Heritage Foundation., "High Debt Is a Real Drag", 2-22-2013, Heritage Foundation, http://www.heritage.org/debt/report/high-debt-real-drag, Accessed sc.7-13-2017

Three teams of economists have separately shown that high government debt has a negative effect on long-term economic growth. When government debt grows , private investment shrinks , lowering future growth and future wages . Estimates across advanced economies show that debt drag reaches large and statistically significant levels as debt grows, with the worst effects occur ring after debt reaches 90 percent of gross domestic product ( GDP ). With U.S. federal , state, and local government debt at 84 percent of GDP and rising, policymakers should be gin taking debt drag into account when considering new deficit spending. Descriptive Statistics Two studies —one by Manmohan Kumar and Jaejoon Woo of the International Monetary Fund (IMF)[1] and one by Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff published by the National Bureau of Economic Research[2]— illustrate that once countries reach ed higher-debt status, they tended to suffer lower subsequent growth . Looking at annual data, Reinhart, Reinhart, and Rogoff show that annual growth after inflation averaged 3.5 percent among countries with central government debt below 90 percent of GDP in the previous year and 2.3 percent among countries with debt above 90 percent of GDP. Kumar and Woo look at five-year averages and report that high-debt advanced economies grew 1.3 percentage points slower annually than their low-debt (below 30 percent) counterparts . Kumar and Woo note that the negative effects of debt build steadily as debt grows from 30 percent to 90 percent. At intermediate debt levels, debt drag is already substantial.[3] Another study —by Stephen Cecchetti, Madhusudan Mohanty, and Fabrizio Zampolli of the Bank for International Settlements[4]— shows that total public debt in 18 advanced economies almost doubled as a share of GDP from 1980 to 2010 . In addition, public, household, and corporate debt all increased by about the same degree. These authors found about the same negative effects on economic growth from high debt levels. Different Methods, Similar Results What makes these results especially compelling is that the different author groups used different statistical and methodological approaches yet found very similar results. Kumar and Woo use growth regressions to find that “on average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated with a slowdown in annual real per capita GDP growth” of 0.19 percentage points per year in advanced economies with debt greater than 90 percent of GDP. Cecchetti, Mohanty, and Zampolli use a different econometric approach but arrive at substantially the same conclusion: At high debt levels, a 10 percentage point increase in initial debt-to-GDP ratio is associated with 0.18 percentage points less GDP growth over the next five years. They also use an econometric technique to find the best cutoff level above which debt is harmful: They find that 84 percent of GDP is the best cutoff. At debt levels less than 84 percent of GDP, the evidence is less clear, and neither study can make statistically significant conclusions. Kumar and Woo estimate that at debt levels between 60 percent and 90 percent of GDP, the effect of 10 percentage points of debt on GDP growth is around –0.16 percentage point per year. Confirming Economic Theory Reinhart, Reinhart, and Rogoff take a descriptive approach, detailing each of 26 episodes of extended “debt overhang.”[5] They find that government debt overhang tends to last a long time—20 of the episodes they study lasted more than a decade. And many debt -overhang episodes featured slow growth despite low interest rates on government debt, suggesting that high government debt hurts growth even in the absence of a crisis . Kumar and Woo use growth accounting to show that “the adverse effects on growth of initial debt largely reflect a slowdown in labor productivity growth mainly due to reduced investment,”[6] which leads to “slower growth of capital per worker.” This confirms economic theory: When savings are invested in government bonds, they cannot also be invested in productive capital. One of the principal determinants of wages is average capital per worker. Production uses both capital and labor, and deepening capital investment

makes labor relatively scarcer and more productive. A scarcer, more productive factor of production commands a higher wage. Thus, when government borrowing crowds out private investment, the economy invests in less capital per worker, causing workers to be less productive and earn lower wages. Policy Implications To put these economists’ estimates in context, a 0.2 percentage point drop in annual GDP growth over the next 10 years would cost Americans $1.9 trillion in income .[7] In the United States, total government debt has risen dangerously close to the threshold level above which debt consistently hurts growth. The IMF estimates that U.S. general government debt reached 84 percent of GDP in 2012. [8] With large federal deficits projected into the future and many state governments in poor fiscal shape, the U.S. is blowing past the threshold estimated by Cecchetti, Mohanty, and Zampolli and into the danger zone. Kumar and Woo estimate the debt drag between 60 percent and 90 percent at 0.16 percentage points in lost GDP. If this estimate is accurate, then the large deficits of the past few years have been very costly for Americans. From 2007 to 2012, general government debt leapt from 48 percent of GDP to 84 percent. Debt added from 2009 to 2011 has already cost Americans $200 billion in foregone growth.[9] Higher debt will cost Americans $2.4 trillion over the next five years. Higher debt will cost Americans $9 trillion over the next ten years. A Moment on the Lips… Policymakers should take the long-term contractionary effects of debt into account when calculating the costs and benefits of government spending. For instance, Cecchetti, Mohanty, and Zampolli’s estimate implies that an additional, one-time $100 billion expenditure in 2013 would cumulatively shave $27 billion off GDP over the next five years and $102 billion off GDP over the next 10 years. High national debt can seriously slow economic growth . Slow growth is in important respects worse than a recession — it lowers incomes and well-being permanently , not just temporarily. Among the unpleasant features of debt is that it is easy to grow and difficult to shrink. Thus, a one-time increase in government debt is typically a permanent addition, and the drag effects on the economy are long-lasting. Short-term policies can dramatically affect long-term growth .

Weak growth causes nuclear war---turns every impactKemp 10 – Geoffrey Kemp, Director of Regional Strategic Programs at The Nixon Center, served in the White House under Ronald Reagan, special assistant to the president for national security affairs and senior director for Near East and South Asian affairs on the National Security Council Staff, Former Director, Middle East Arms Control Project at the Carnegie Endowment for International Peace, 2010, The East Moves West: India, China, and Asia’s Growing Presence in the Middle East, p. 233-234

The second scenario, called Mayhem and Chaos, is the opposite of the first scenario; everything that can go wrong does go wrong. The world economic situation weakens rather than strengthens , and India, China, and Japan suffer a major reduction in their growth rates , further weakening the global economy. As a result, energy demand falls and the price of fossil fuels plummets, leading to a financial crisis for the energy-producing states, which are forced to cut back dramatically on expansion programs and social welfare. That in turn leads to political unrest : and nurtures different radical groups, including, but not limited to, Islamic extremists. The internal stability of some countries is challenged , and there are more “failed states.” Most serious is the collapse of the democratic government in Pakistan and its takeover by Muslim extremists , who then take possession of a large number of nuclear weapons. The danger of war between India and Pakistan increases significantly . Iran, always worried about an extremist Pakistan, expands and weaponizes its nuclear program. That further enhances nuclear prolif eration in the Middle East , with Saudi Arabia, Turkey, and Egypt joining Israel and Iran as nuclear states. Under these circumstances, the potential for nuclear terrorism increases, and the possibility of a nuclear terrorist attack in either the Western world or in the oil-producing states may lead to a further devastating collapse of the world economic market, with a tsunami-like impact on stability. In this scenario, major disruptions can be expected, with dire consequences for two-thirds of the planet ’s population .

Uniqueness

2NC – UQ WallDebt-to-GDP ratio is manageable in the squo – 77% Azzarello 16 – Samantha Azzarello, Vice President, is a Global Market Strategist on the J.P. Morgan Asset Management Global Market Insights Strategy Team, September 16, 2016 ("5 government debt myths," J.P. Morgan asset management, https://am.jpmorgan.com/us/en/asset-management/gim/adv/market-insights/5-myths-about-u-s-government-debt, Accessed 07-13-2017, JD)

Myth 2: The U.S. debt is out of control

The U.S. debt is at elevated levels , but the current debt-to-GDP ratio is manageable.

In absolute terms, U.S. government debt, measured as total debt held by the public, is $13 trillion –a record high. A broader measure of U.S. debt, which includes the debt the government owes to itself, totals $19 trillion . But absolute debt levels do not tell the whole story, as it is important to consider the size of our debt in comparison to the size of the economy, which is also at a record high.

In this context, the debt-to-GDP ratio stands at approximately 77% ; an elevated level, but hardly a record. For instance, the ratio reached a high of 108% in 1946, reflecting the costs of World War I I (Exhibit 2). While the debt-to-GDP ratio is projected to increase, it is not expected to explode through the next decade. The Congressional Budget Office (CBO), a non-partisan government organization, projects an increase in net debt as a percentage of GDP – from 77% in 2016 to 86% in 2026 (Exhibit 2).2 Research suggests that high levels of government debt can be damaging to long-term growth, potentially leaving an economy more susceptible to shocks . 3

Current Trump policies keep spending in check – downsizing the federal government and pushing power to the private sector and the states – that’s key to a stable economy – the plan reverses itBoccia 17 – Romina Boccia, Deputy Director Thomas A. Roe Institute Romina is a leading fiscal and economic expert at The Heritage Foundation and focuses on government spending and the national debt, May 29th, 2017(“How America Can Get Its Fiscal House in Order”, Heritage, http://www.heritage.org/budget-and-spending/commentary/how-america-can-get-its-fiscal-house-order, Accessed 07-09-2017, JD)

The United States is on a dangerous spending path . Congress and the Trump administration must work together to put the budget on a path to balance and restore economic growth and opportunity for

Americans. Reconciliation is a powerful tool, enabling Congress to pursue fiscally responsible, pro-growth tax and spending reform, beginning with the congressional budget resolution this year. Now that President Trump has submitted his first budget proposal to Congress, the congressional budget process is in full swing. Next up, Congress will introduce its

budget resolution this June, determining the maximum funding level for discretionary spending, as well as establishing reconciliation instructions to enact budgetary policies, contained in the resolution. The president’s budget presents a guiding vision and reveals his preferences, helping Congress to determine what proposals might survive his veto power. By leveraging the bully pulpit, the president can unite the nation around shared principles to rightsize the federal government . Yet, Congress has primary responsibility for determining federal spending and tax levels and the budget resolution is the key process tool to establish and correct fiscal policy. Congress’s budget decisions do not operate within a vacuum. Rising deficits threaten to push the already excessive national debt of nearly $20 trillion into the stratosphere, as spending on entitlement programs continues expanding

without controls. Addressing the nation’s fiscal challenges requires swift, bold action. Congress should act with a few principles in mind as lawmakers prepare the budget for fiscal year 2018 . The budget should balance in no more than ten years. It should reduce tax revenues to the pre-Obamacare era,

providing for full repeal of this harmful law. Defense spending should be prioritized within the overall annual spending limit established by the 2011 Budget Control Act, by offsetting prudent and necessary defense funding increases with cuts and program eliminations to domestic programs. Too many domestic programs fund activities that rightfully belong in the private sector, state or local governments, or are duplicative or ineffective. Heritage’s Blueprint for Balance identifies $87 billion in savings in fiscal year 2018 alone. It’s not for a lack of good ideas that spending continues growing in all the wrong places. The congressional budget determines

how much lawmakers are allowed to spend on defense and domestic programs that must receive appropriations each year. Together, these budget categories (discretionary spending) make up one-third of the entire federal budget. Congress’s end-of-the-year spending bill provides funding for these categories, and when lawmakers fail to do so, it triggers a partial government shutdown. Congress should be working on passing spending bills in a timely fashion, before the September 30 deadline, beginning with defense appropriations. The other two-thirds of the federal budget, called mandatory spending, are largely exempt from annual appropriations. Their authorizing statutes establish criteria that allow for continuous spending. These programs operate largely on autopilot. Medicare and Social Security are the best-known programs governed by this process. Tax revenues are determined by the federal tax code. There is broad agreement that the tax code needs reform. Tax reform should lower marginal tax rates, close special-interest loopholes, and broaden the overall tax base. It should also reduce distortions affecting saving and investing, and restore U.S. international competitiveness by lowering or eliminating what amounts to the highest corporate tax rate in the world. Congress has a powerful tool in its arsenal to pursue fiscally responsible, pro-growth tax reform this year. Reconciliation allows Congress to pursue its agenda with a

simple majority vote in the Senate. As spending is driving growing deficits and debt, Congress should reduce and control spending while alleviating the overall tax burden faced by individuals and businesses. Congress can pursue deficit-neutral tax reform, using reconciliation, by cutting spending at the same time.

2NC – Economy StableU.S. Economy stable now – low unemployment, steady growth, and stabilized inflationAntoine Gara 17, "U.S. Economy Posts Strong Jobs Gains In June, Keeping Fed On Track To Exit Crisis-Era Playbook", 7-7-2017, Forbes, https://www.forbes.com/sites/antoinegara/2017/07/07/u-s-economy-posts-strong-jobs-gains-keeping-fed-on-rate-hiking-path-as-crisis-era-fades/#67041d9cd867, Accessed sc.7-9-2017

The U.S. economy added 222,000 jobs in June and monthly employment statistics from May and April were revised higher . The strong jobs report , from the Bureau of Labor Statistics, means the U.S. economy is consistently adding nearly 200,000 jobs a month and unemployment remains low , allowing the Federal Reserve to continue hiking interest rates in the second half of the year. Economists had predicted an increase of 178,000 jobs in June according to Bloomberg data, signaling the June report beat high expectations. The monthly report is currently the most watched piece of economic data by investors because steady growth in the U.S. has positioned the Fed as a first mover among major global central banks in moving away from the rock-bottom interest rates that carried markets out of the the 2008 crisis. Since late 2016, the Fed has hiked interest rates three times on account of low unemployment, steady growth, and signs of stabilizing inflation. Friday's jobs report will give Federal Reserve chair Janet Yellen the ability to plot a deliberate course on rate hikes and a trimming of the central bank's balance sheet.. "We think that the Fed will see this wage data as satisfactory and clearly can execute a September decision (and quick implementation) on initiating balance-sheet reduction," said Rick Rieder, chief investment officer of fixed income at BlackRock and portfolio manager of three of the firm's bond funds. "This also allows the Fed a good deal more time to decide on a December rate hike after having begun its balance sheet reduction program," he added of the Fed's options. Payrolls in April and May were revised higher by a total of 47,000 jobs, putting three month job gains at an average of 194,000. The national unemployment

rate was unchanged at 4.4%, slightly higher than predictions of 4.3%, as some workers returned to the job market. This data means investors around the world will continue to adjust their portfolios to account for a moderate step off from the crisis-era tools like zero rates and central bank bond buying that kept fears of deflation at bay. Instead, there are signs of steady inflation and g ross d omestic p roduct g rowth years into the economic recovery, a boon to confidence. Economists at Deutsche Bank characterized Friday's jobs report as "perfect" for risk assets like stocks. U.S. equities Friday trading with the S&P 500 closing up 0.64% at $2,425.18, while safe haven assets like the 10-year Treasury and gold fell.

U.S. economy growing at a steady pace Howard Schneider and Lindsay Dunsmuir 17, "Fed sees steady economy, only "moderate" financial vulnerabilities", 7-7-2017, Reuters, https://www.reuters.com/article/usa-fed-report-idUSFOM7IEDB3, Accessed by SC 7-9-2017

The US economy continues to churn out jobs and grow at a steady pace, with investment and consumer confidence both healthy and only moderate signs of risk in financial markets, the US Federal Reserve said on Friday in its semi-annual report to Congress.

With stock markets near record levels , and interest rates and credit conditions still loose, the report gave detailed attention to whether the financial system and bond markets posed any particular threat to the country’s eight-year economic expansion. The answer so far is no, said the Fed, noting that there is little evidence of a liquidity crunch in the corporate or other bond markets, and no evidence that rising asset values pose a problem . The structure of the corporate bond market is changing with new regulations, the Fed said, but by traditional measures shows only minimal strain in adapting.

2NC – Link UniquenessDebt spending collapses the economy – particularly true of the squo administration Krugman 17 – Paul Krugman, Distinguished Professor of Economics at the Graduate Center of the City University of New York, January 9th 2017 (“Deficits Matter Again,”, https://www.nytimes.com/2017/01/09/opinion/deficits-matter-again.html?mtrref=theweek.com&assetType=opinion, Accessed 07-09-2017, JD)

Those apocalyptic warnings are still foolish: America, which borrows in its own currency and therefore can’t run out of cash , isn’t at all like Greece. But r unning big deficits is no longer harmles s , let alone desirable. The way it was: Eight years ago, with the economy in free fall, I wrote that we had entered an era of “depression economics,” in

which the usual rules of economic policy no longer applied, in which virtue was vice and prudence was folly. In particular , deficit spending was essential to support the economy , and attempts to balance the budget would be destructive. This diagnosis — shared by most professional economists — didn’t come out of thin air; it was based on well-established macroeconomic principles . Furthermore, the predictions that came out of those principles held up very well. In the depressed economy that prevailed for years after the financial crisis, government borrowing didn’t drive up interest rates, money creation by the Fed didn’t cause inflation, and nations that tried to slash budget deficits experienced severe recessions. But these predictions were always conditional, applying only to an economy far from full employment. That was the kind of economy President Obama inherited; but the Trump-Putin administration will, instead, come into power at a time when full employment has been more or less

restored. How do we know that we’re close to full employment? The low official unemployment rate is just one indicator . What I find more compelling are two facts : Wages are finally rising reasonably fast, showing that workers have bargaining power again, and the rate at which workers are quitting their jobs, an indication of how

confident they are of finding new jobs, is back to pre-crisis levels. What changes once we’re close to full employment? Basically, government borrowing once again competes with the private sector for a limited amount of money. This means that deficit spending no longer provides much if any economic boost, because it drives up interest rates and “crowds out” private investment . Now, government borrowing can still be justified if it serves an important purpose: Interest rates are still very low, and borrowing at those low rates to invest in much-needed infrastructure is still a very good idea, both because it would raise productivity and because it would provide a bit of insurance against future downturns. But while candidate Trump talked about increasing public investment, there’s no sign at all that congressional Republicans are going to make such

investment a priority. No, they’re going to blow up the deficit mainly by cutting taxes on the wealthy. And that won’t do anything significant to boost the economy or create jobs. In fact, by crowding out investment it will somewhat reduce long-term economic growth. Meanwhile, it will make the rich richer, even as cuts in social spending make the poor poorer and undermine security for the middle class . But that, of course, is the intention.

The plan comes at the worst time possible – federal spending now causes rampant inflation and widespread economic effectsBourne 6-9 – Ryan Bourne, BA and an MPhil in economics from the University of Cambridge, United Kingdom. the R. Evan Scharf Chair for the Public Understanding of Economics at Cato, 6-9-2017 (“Trump Is Right Not to Spend for the Sake of Spending” https://www.cato.org/publications/commentary/trump-right-not-spend-sake-spending//, Accessed 07-09-2017, JD)

Donald Trump’s adviser Steve Bannon once claimed US conservatives were going to “go crazy” about the new administration’s infrastructure plans. Trump had spoken endlessly about investing $1 trillion (£773bn) in American highways, roads, bridges, tunnels, airports, and more, and how this was going to create jobs and improve growth.

This won praise even from his Democrat opponents, but coming so soon after President Obama’s 2009 “stimulus” programme, was the stuff of fiscal conservative nightmares.

Fast forward to today and it’s the Democrats upset with Trump again. The one issue which offered the possibility of cross-party co-operation has again broken along partisan lines.

That’s because in his budget a fortnight ago, Trump relegated infrastructure to his second tier of priorities, pledging a much smaller $200bn (£155bn). Instead of federal spending, Trump’s team wants to focus on reducing regulations , streamlining permitting processes and encouraging user fees, such as tolling, to boost private investment to get to the $1 trillion total. To Democrats, who want more spending and are concerned by more private sector involvement in infrastructure, this is seen as a missed opportunity to boost growth significantly.

But is it? The Democrat position has become conventional wisdom among commentators. More government infrastructure spending is seen as a “win-win” that can boost GDP in the short term, creating high-paid jobs, and enhance productivity in the longer term, through better connectivity and mobility. Just last week the OECD called for more public investment in the UK.

Yet there are good reasons to think both claims are severely overblown, particularly for the US.

In fact, now is probably the worst possible time for a fiscal stimulus there. The unemployment rate has fallen to 4.3pc, below the level that many organisations believe is sustainable . There are some reports of labour shortages. In such an environment, more government borrowing for major projects will simply shift workers from private sector activity into government-driven activity. This is particularly true given the recorded unemployment rate in construction is now at its lowest level since the height of the boom in 2007.

More government borrowing in a period when interest rates are rising and with full employment will also increase inflation , leading to higher interest rates more quickly, in turn discouraging capital investments in the private sector. Increasing federal spending temporarily will do little to boost short-run GDP but will raise US public debt further.

No serious economist, of course, would argue that having good infrastructure in the long term would not enhance an economy’s growth potential. With productivity growth projections in the US so low compared to historic rates, one can see the appeal of thinking careful, targeted, long-term infrastructure investment could really help boost growth. But the real question is whether a centralised national infrastructure programme is the best means of achieving good infrastructure and higher productivity.

Japan threw $6.3 trillion at infrastructure between 1991 and 2008 and, while they have an excellent rail system and other marvels, it did little to boost long-run growth. A recent academic study of major Chinese infrastructure investment projects undertaken by the University of Oxford found that over half had benefit-to-cost ratios below 1 — net losses in economic value.

Link

Link – EducationSpending on education causes a rapid increase in the debt-to-GDP ratio – reduces the debt burdenKuepper 17 – Justin Kuepper, financial journalist and private investor with over 15 years of experience in the domestic and international markets, 3-15-2017 ("What is the Debt-to-GDP Ratio?," Balance, https://www.thebalance.com/what-is-the-debt-to-gdp-ratio-1978993, Accessed 07-10-2017, JD)

Countries can find themselves burdened with a high debt-to-GDP ratio in many ways , from unexpected slowdowns to predictable demographic changes. Solving these problems requires one of two things that affect the basic debt-to-GDP equation (without print money outright): Cutting spending to reduce debt or encouraging growth to increase gross domestic product.

Here are some common causes of high debt-to-GDP ratios:

Unexpected Slowdown - Countries that are growing quickly may take on more debt to support that growth, but an unexpected slowdown can result in a sharply higher debt-to-GDP ratio. For instance, Japan's stagnation after its rapid growth in the 1980s resulted in its elevated debt today.

Demographic Changes - Aging populations can place a burden on social security systems, which may be funded in part by debt. For example, the U.S. Social Security system is partially responsible for its projected increase in public debt and the subsequent predicted rise in its debt-to-GDP ratio.

Government Spending - Government spending increases can lead to a higher debt-to-GDP ratio (or higher inflation) if they outpace the country's growth rates . For instance, some socialist governments that overtake capitalist predecessors tend to increase their spending and see their debt-to-GDP ratio increase.

Here are some common solutions to a high debt-to-GDP ratio :

Cut Government Spending - Governments with a high debt-to-GDP ratio can cut spending to reduce their debt burden. However, the trick to successfully cutting spending is not to deter growth and undermine the GDP portion of the equation.

Encourage Growth - Central banks can encourage growth by cutting interest rates, which (in theory) leads to easier commercial lending . Higher growth increases the GDP end of the equation and lowers the overall debt-to-GDP percentage.

Increase Tax Income - Governments can increase taxes as a way to pay off debt . But again, the trick is to increase taxes in a way that does not affect GDP growth and undermine the denominator in the equation.

Link – Fiscal DisciplineUnited States must keep fiscal house clean – the plan causes massive stumbling block in the budget processDavidson 16 – Jacob Davidson, news editor at Time. He previously worked at Money as a reporter/producer, covering tech, the economy, and everyday finance, 2-11-2016 ("How Much Does America's Huge National Debt Actually Matter?," http://time.com/4214269/us-national-debt/, Accessed 07-11-2017, JD)

But while the U.S. is far from trouble at the moment, it will have to clean up its fiscal house at some point . The Congressional Budget Office projects public debt in 2026 will jump ten points to 86% of GDP, and will hit a record 155% of GDP in three decades. Interest on debt, that minimum credit card payment, is projected to eclipse military spending by 2021, putting the squeeze on other fiscal priorities. If spending continues on its projected course and nothing is changed, debt interest payments will become a larger government expense than even Social Security by about 2060.

The CBO says we can we can keep debt-to-GDP levels where they are now by either cutting spending or raising taxes by 1.1% of GDP if we start now, or 1.9% if we start in ten years (returning to historically normal levels will take more severe measures). That's not a huge burden, but it will get more painful the longer we wait." At this point what we're doing is fine, we shouldn't necessarily be focussed on the fiscal situation," Zandi says. "But you look into the next decade , and then three decades from now, things are going to break."

US must maintain fiscal responsibility for the good of its economyConant 17— Ed Conant, Political writer for Athens Banner-Herald, June 4th, 2017 (“Conant: America must move toward fiscal responsibility,” Online Athens, http://onlineathens.com/opinion/2017-06-04/conant-america-must-move-toward-fiscal-responsibility, Accessed 07-14-2017, JD)

The federal debt continues to grow at an alarming rate, but too many of us are not alarmed. The debt grows with mathematical certainty, yet America has taken a “so far, so good” attitude.

From 1981 until today, the nation has gone from less than $1 trillion in debt to today’s $20 trillion. With existing federal tax and spending plans, it will grow to $30 trillion in the next 10 years. That’s right. According to the Congressional Budget Office, we have a $10 trillion debt increase already baked in over the next 10 years.

Yet, the debt has steadily increased with no apparent downside. The stock market is hitting record highs, interest rates are near record lows, the financial markets continue to refinance our expanding debt, and life goes on. Low taxes and generous spending help support the good life. What’s not to like?

What’s not to like is the debt’s devastating damage to our future. This year the interest on the debt is $670 billion. The CBO predicts the interest will more than double to $1.4 trillion in 10 years, largely due to benefits for retiring baby boomers and rising worldwide interest rates. That much interest would be more than half the personal income tax projected that year.

This is outrageous! Half of all income tax for debt service? Debt service does not pay Medicare benefits, fund the military or any other benefit.

An even greater problem is an eventual debt crisis . When the financial markets conclude that America’s debt is so high that we are at risk of default, the markets will impose higher and higher interest rates . We will have no choice but to pay because we must refinance maturing federal debt. Lawmakers will then be forced to drastically cut spending and increase tax revenue to get the debt crisis under control.

Today’s spending levels and tax rates will be a distant happy memory. The dollar’s status as the world’s reserve currency will be in jeopardy, and our bonds will no longer be the world’s highest-rated debt instruments.

We will no longer be the world’s largest economy, as growth is reduced by stringent fiscal recovery measures. And we will be unable to continue to fund the world’s most powerful military. As former Chairman of Join Chiefs of Staff Adm Mike Mullen stated, the federal debt is the nation’s greatest national security problem.

Why are we letting this happen? Primarily because getting the debt under control is difficult. We have become complacent, comfortable with the government spending 15 percent to 20 percent more than it takes in, and collectively we don’t want higher taxes and less spending.

There is a near- complete lack of political leadership on controlling the debt . Our politicians know that effective steps to fix the debt will be unpopular, and instead of leadering, they choose not to address it.

Georgia Republican Sen. David Perdue is one politician who has been an outspoken critic of the debt. He said, “If we don’t get serious about solving our debt crisis right now, we will not be able to fully support our national security or domestic priorities.”

Will Morris, chairman of Morris Communications, which owns this newspaper, addressed the debt in the “Crossroads for America” insert in the Feb. 5, 2017, edition of all their newspapers.

“We go on living beyond our means and burdening future generations with our debt – which is patently immoral,” Morris wrote.

And that is true. Our fiscal conduct is immoral. As responsible adults, how can we leave this looming fiscal crisis to our children and grandchildren? The sooner we start controlling our debt, the more likely we will be successful.

Older citizens like me may not benefit from sacrificing now to avoid a debt crisis in the future. But recall the Greek proverb that says, “A society grows great when old men plant trees whose shade they know they shall never sit in.”

America needs to plant the seeds of fiscal responsibility to remain a great society.

A2: Link turn – Education boost economy Federal Spending on education leads to federal overreach that causes the economy to suffer large losses of growthMitchell 5 – Daniel Mitchell, Senior Fellow in Political Economy at the Cato Institute. 10-25-2005, ("The Economic Consequences of Government Spending," Heritage Foundation, http://www.heritage.org/testimony/the-economic-consequences-government-spending, Accessed 07-07-2017, JD)

The microeconomic costs of government spending involve the impact of various forms of budget outlays . The two most important of these effects are the "subsidy for sub-optimal behavior" and the "penalty for pro-growth behavior." In the first instance, some government programs are directly linked to choices that reduce economic performance. Prior to welfare reform, for instance, income transfer programs frequently rewarded people for choosing not to work or for having children out of wedlock.

In the second instance, specific government programs discourage behaviors that are good for the economy . A large number of government programs , for example, reduce incentives to save by subsidizing health care,

retirement, education, and housing. Other programs reduce incentives to work.

Other forms of microeconomic damage are associated with outlays - such as budgets for regulatory agencies - that result in the imposition of costs on private sector activity. A recent example is the Sarbanes-Oxley legislation. The actual budget costs for the Securities and Exchange Commission is only a fraction of the economic costs associated with the regulatory burden generated by that single piece of legislation.

Another form of microeconomic damage involves the misallocation of resources . Education is widely considered a public good, yet there is considerable evidence that the means of delivering that public good is very inefficient because government school monopolies provide a very low amount of educational achievement per dollar spent.

The economic impact of government spending can be presented in graphical form. The so-called Rahn Curve in Figure 1 (attached) shows that economic output or growth is very low when government is non-existent. In this anarchical world, workers, savers, investors, and entrepreneurs do not have an environment conducive to productive behavior.

As certain public goods are provided, however, economic growth and/or output rises. There is a growth-maximizing level of government

spending. But once outlays exceed that point, economic performance begins to slip. And as government becomes bigger and bigger, the economy suffers larger losses of output and/or growth.

Education does not increase growth, their studies are flawedChandra Abhijeet 10, Doctoral Candidate – Finance, Department of Commerce & Business Studies, Jamia Millia Islamia (Central University), New Delhi-110 025. “Does Government Expenditure on Education Promote Economic Growth? An Econometric Analysis” https://mpra.ub.uni-muenchen.de/25480/1/MPRA_paper_25480.pdf

In this paper we review a large body of empirical macroeconomic literature which has focused on the relationship 686 WORLD DEVELOPMENT between education and economic growth . Research findings on this link are controversial. Their interpretation must take into account several conceptual and methodological problem s. Most importantly, educational attainment, commonly used in empirical studies, is a crude measure of human capital, since it measures education quantity, while education quality varies widely across countries and time periods. Also, low data quality for educational attainment as well as important econometric issues, such as omitted variable bias, parameter heterogeneity, reverse causality, and non-linearity, are factors responsible for the non-robustness of the results. In light of these, we make an attempt to evaluate the empirical literature on the effect of education on growth and explain the wide variation in reported estimates. Specifically, we analyze the findings of 57 empirical studies and apply

meta -regression analysis using four estimators, correcting for possible publication selection bias in the literature. We investigate the impact of several factors on the variation of estimates of the growth impact of education. Our MRA analysis produces interesting results, which are robust to different estimators, the inclusion of various controls for the quality of research outlets and the presence of outliers in our data set. First, we confirm the presence of substantial upward publication selection bias in the empirical education- economic growth literature , while we find no evidence of a large amount of unexplained heterogeneity. Second, all methods do not indicate a representative genuine education effect on growth after correction for publication selection , because this effect depends on several factors. Third, differences across studies regarding the above impact can be partially attributed to differences in terms of their characteristics. Specifically, the inclusion of education enrollment, education spending, political measures , initial output, and inflation tend to make the impact of education on growth, corrected for publication bias, positive .

Deficit spending doesn’t solveBartholomew 16 –James Bartholomew, Author and Journalist @ Spectator (“The one thing most people think they know about economics is wrong,” 16 January 2016, https://www.spectator.co.uk/2016/01/the-one-thing-most-people-think-they-know-about-economics-is-wrong/, Accessed 07-10-2017, JD)

There is just one little problem: the idea is wrong . And as China — a devout follower of Keynes these days as much as of Marx — falters, it is becoming more and more apparent just how wrong it is. The key idea is that if the economy is in the doldrums, the government should pep things up by borrowing and spending. If the public is reluctant to spend for one reason or another, the government should gallop along like the cavalry to rescue the day. The government should build roads, giving employment to builders who will then spend their wages on nights out, giving employment to waiters who will then buy new clothes, giving employment to shop assistants — and so on. The economy is thus given a boost by the good old government and all is well again. In the Edexcel textbook this is referred to in capital letters because it is so central to how things work. It is called ‘demand management’ . And, to take one example, in 2008 Gordon Brown decided the government should do some extra borrowing and spending to resist the downward force of the crisis. I remember appearing on Radio 5 Live at the time, and when I resisted the idea, I was firmly told by the BBC economics correspondent that the vast majority of economists thought it was the right thing to do. And after all, if everybody believes it, it must be true. In fact, during the past 50 years, there have been a number of times when the validity of this central part of Keynesianism has been put in doubt. But the idea has been like Tom, the cat in Tom and Jerry. However many times it is squashed under a ten-ton weight or falls from a great height on to rocks, it comes up smiling and unrepentant. Gradually, however, reasons to think it is not true have grown in number and received a heavier weight of support from academics. The most significant work has come from a group of Italian economists. A landmark paper was written by Francesco Giavazzi and Marco Pagano in 1990. This has been followed up by more work by Alberto Alesina, Silvia Ardagna and others. They have been dubbed ‘the Bocconi boys’, which makes them sound like a mafia gang but is in fact a reference to the university in Milan where many of them have been professors or students. The 1990 paper looked at the performance of Ireland and Denmark in the 1980s. It noted how these countries had reduced their government budget deficits, which according to Keynesian theory should have depressed the economy . But on the contrary, the economies did particularly well . From that beginning, the Bocconi boys

have gained territory and influence, spreading representatives into the Bank of England, the European Union and Harvard. Most recently, our own Professor Tim Congdon has written a couple of papers with a thorough summary of how the Keynesian theory has not worked since 1980 in Britain and America. He compares the changes in the budget deficit after adjustment for the business cycle with changes in the ‘output gap’ — how much the economy is performing below its non-inflationary potential. All the figures come from the International Monetary Fund. The results do not fit Keynesian theory one little bit . Take the period from 1981 to 1988. It started with a budget produced by Geoffrey Howe in which he set out how he was going to cut the budget deficit, year after year. Appalled and disgusted, 364 economists representing the overwhelming Keynesian consensus wrote to the Times saying this would be disastrous. As it turned out, the following seven years of deficit reduction saw a reduction in the output gap and above-trend growth. Another period of reducing deficits, from 1994 to 2000, saw another period of above-average performance. In contrast, there were two periods when the government did more borrowing and spending — 1989–93 and 2001–09. In theory the expanding deficits should have boosted demand. In fact, they were times when the economy underperformed . Most recently, the government has been cutting the budget deficit again. As in 1981, we know that the Keynesian consensus expected this to go badly. In 2011, Martin Wolf, for the Financial Times, said that the planned deficit reductions were ‘a huge gamble’. He repeated with approval the view of Larry Summers, a former US treasury secretary no less, that the UK plans were ‘not going to work out well’. But as it has turned out , the output gap has been narrowed . In America, too, Keynesian theory has kept on being wrong-footed. During the Clinton presidency, spending was being cut on both defence and welfare. According to the Keynesians, the cutting of the structural budget deficit should have depressed the economy. But the very opposite happened. It boomed . Output moved from being 3 per cent below trend to 1.5 per cent above. And in late 2012, Keynesians got very distressed about the ‘fiscal cliff’. This was the moment when taxes were increased and government spending reduced. Keynesians foresaw doom and gloom . Instead, growth accelerated in the following year . We can also make some comparisons between countries. President Hollande was elected to power in 2012 explicitly on an ‘anti-austerity’ platform. In contrast to Britain, France did not attack its spending level. So, according to Keynesian theory, he was bravely fending off an economic downturn. But France’s economy, with its Keynesian cavalry, has done worse than Britain’s . France, the country that ‘rejected’ austerity, got it in full measure. Britain, the country that tried to be prudent, was the one that came out of the crisis better.

Internal Link

AT Indicts of 90%Errors are minor – threshold for link confirmed by other studies Reinhart & Rogoff 13 – Carmen M. Reinhart, is the Minos A. Zombanakis Professor of the International Financial System at Harvard Kennedy School, Kenneth S. Rogoff, American Economist and a Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University ("Reinhart and Rogoff: Responding to Our Critics", 4-25-2013, New York Times, http://www.nytimes.com/2013/04/26/opinion/reinhart-and-rogoff-responding-to-our-critics.html?pagewanted=all, Accessed 7

LAST week, we were sent a sharply worded paper by three researchers from the University of Massachusetts, Amherst, at the same time it was sent to journalists. It asserted serious errors in our article “Growth in a Time of Debt,” published in May 2010 in the Papers and Proceedings of the American Economic Review. In an Op-Ed essay for The New York Times, we have tried to defend our research and refute the distorted policy positions that have been attributed to us. In this appendix, we address the technical issues raised by our critics.

These critics , Thomas Herndon, Michael Ash and Robert Pollin, identified a spreadsheet calculation error , but also [and] accused us of two “serious errors”: “selective exclusion of available data” and “unconventional weighting of summary statistics.”

We acknowledge d the calculation error in an online statement posted the night we received the article, but we adamantly deny the other accusations .

They neglected to report that we included both median and average estimates for growth, at various levels of debt in relation to economic output, going back to 1800. Our paper gave significant weight to the median estimates , precisely because they reduce t he problem posed by data outliers , a constant source of concern when doing archival research that reaches far back into economic history spanning several periods of war and economic crises.

When you look at our median estimates , they are actually quite similar to those of the University of Massachusetts researchers. (See the attached table.)

Moreover , our critics omitted mention of our paper “ Public Debt Overhangs: Advanced-Economy Episodes Since 1800,” with Vincent R. Reinhart, published last summer , in The Journal of Economic Perspectives. That paper , which is more thorough than the 2010 paper under attack, gives an average estimate for growth when a country’s debt-to-G.D.P. ratio exceeds 90 percent of 2.3 percent — compared to our critics’ figure of 2.2 percent . (Also see the comparisons posted by the blogger known as F. F. Wiley, including his chart, a copy of which accompanies this essay.)

Despite the very small actual differences between our critics’ results and ours, some commenters have trumpeted the new paper as a fundamental reassessment of the literature on debt and growth. Our critics have done little to argue otherwise; Mr. Pollin and Mr. Ash made the same claim in an April 17 essay in The Financial Times, where they also ignore our strong exception to the claim by Mr. Herndon, Mr. Ash and Mr. Pollin that we use a “nonconventional weighting procedure.” It is the accusation that our weighting procedure is nonconventional that is itself nonconventional. A leading expert in time series econometrics, James D. Hamilton of the University of California, San Diego, wrote (without consulting us) that “to suggest that there is some deep flaw in the method used by RR or obvious advantage to the alternative favored by HAP is in my opinion quite unjustified.” (He was using the initials for the last names of the economists involved in this matter.)

Above all, our work hardly amounts to the whole literature on the relationship between debt and growth, which has grown rapidly even since our 2010 paper was published. A number of careful empirical studies have found broadly similar results to ours. But this is not the definitive word, as a smaller number of just as scholarly papers have not found a robust relationship between debt and growth. (Our paper in The Journal of Economic Perspectives included a review of that literature.)

Researchers at the Bank of International Settlements and the International Monetary Fund have weighed in with their own independent work. The World Economic Outlook published last October by the International Monetary Fund devoted an entire chapter to debt and growth. The most recent update to that outlook, released in April, states: “Much of the empirical work on debt overhangs seeks to identify the ‘overhang threshold’ beyond which the correlation between debt and growth becomes negative. The results are broadly similar: above a threshold of about 95 percent of G.D.P., a 10 percent increase in the ratio of debt to G.D.P. is identified with a decline in annual growth of about 0.15 to 0.20 percent per year.”

This view generally reflects the state of the art in economic research , and the I.M.F. goes on to give many more subtleties. We have never complained as the body of work we helped to build has evolved — instead, we have tried to learn from it. In contrast, our critics have politicized the issue, noting the citation of our research by Representative Paul D. Ryan of Wisconsin, the Republican vice-presidential nominee last year.

Affirmative

Debt-to-GDP Ratio

2AC – Non – UQThe United States debt-to-GDP ratio high now compared to other countries – massive strength of U.S. dollarMcbride 17 – James Mcbride, James McBride is a senior online writer/editor of economics at the Council on Foreign Relations, 2-28-2017 ("How Trump's budget proposal could affect America's debt," PBS NewsHour, http://www.pbs.org/newshour/rundown/trump-prepares-budget-proposal-actual-u-s-debt/, Accessed 07-11-2017, JD)

What about the debt ceiling?

Congress has long tried to exert control over federal spending by placing a limit on U.S. debt. This “debt ceiling” has been raised fourteen times since 2001 . During the administration of President Barack Obama, Republicans in Congress used it as a bargaining chip in 2011 budget negotiations. While the ceiling was ultimately raised in that instance, the standoff led investors to question the U.S. government’s ability to pay its debts and drew the first-ever downgrade of U.S. debt, from the ratings agency Standard & Poor’s. In 2013, and then again in 2015, Congress voted to temporarily suspend the limit.

The current suspension expires in March, and Trump administration appointees have signaled differing philosophies. Treasury Secretary Steven Mnuchin has warned of the dangers of defaulting, while the director of the Office of Management and Budget, Mick Mulvaney, has previously favored using the debt limit to push for spending cuts.

How does U.S. debt compare to other countries?

T he United States’ debt-to-GDP ratio is among the highest in the developed world . Among other industrialized countries, the United States is behind only Belgium, Portugal, Italy, Greece, and Japan.

The United States, however, benefits from the U.S. dollar being considered the most stable and desirable currency in the world. High demand for the dollar as the global reserve currency means that the United States can finance its debt more cheaply and easily than most other countries.

2AC – UQ overwhelms LinkThe debt-to-GDP ratio will inevitably go over their link threshold – spending cuts are the only way to solveMauro 16 – Paolo Mauro, Contributor to the US News &World Report and a senior fellow at the Peterson Institute for International Economics, 7-18-2016 ("Debt Dangers," US News & World Report, https://www.usnews.com/opinion/articles/2016-07-18/the-us-government-is-living-dangerously-in-debt, Accessed 07-13-2017, JD)

The C ongressional B udget O ffice project s , under current law, that the federal debt will rise to 86 percent in 2026 and to 141 percent in 2046. Neither presidential candidate is proposing to reverse that trend. According to the Committee for a Responsible Federal Budget, the debt ratio that would result in 2026 from the candidates' proposals is 87 percent for Clinton and 127 percent for Trump . No doubt politicians will promise higher economic growth, but – short of Harry Potter's intervention upon his return later this month – it would seem prudent to stick with the CBO's assumptions.

How should the new administration and Congress address the high debt ratio beginning next year? Many strategies that worked in the past are no longer available. A surprise bout of inflation would be damaging and in any case is difficult to imagine, given how long it is taking the Fed to return to its 2 percent target. And if it were possible to sustain high inflation and low interest rates, investors would take their funds abroad. That rules out the "financial repression" strategy of the 1950s-60s, when international capital markets were less open. Alternative approaches such as outright default would be even more disruptive. Indeed, to avoid spooking investors, candidates should not suggest inflation or default as potential means of slashing the debt.

That leaves old-fashioned fiscal adjustment through spending cuts – which are increasingly difficult as population aging adds pressures on entitlement programs – and revenue increases. The pace of adjustment should be gradual, in order not to disrupt the global recovery. The U.S. debt ratio may thus be expected, at best, to decline slowly. Prepare to live dangerously for several more years.

2AC – No I/LNo Internal Link – their 90 percent threshold is based on flawed dataJohn Cassidy 13, "The Reinhart and Rogoff Controversy: A Summing Up", 4-26-2013, New Yorker, http://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up, Accessed sc.7-14-2017

That’s an interesting finding, and it’s hardly surprising that Reinhart and Rogoff have seized upon it to argue that there isn’t anything new in the Amherst paper. But, wait a minute. Annual growth of 3.2 per cent doesn’t sound too bad. Is there a level of indebtedness at which growth ceases

or turns negative? Reinhart and Rogoff argued that there was, and that’s what gave their pro-fiscal- consolidation message its potency. In the 2010 paper at the center of the dispute, they identified the threshold as a debt-to-G.D.P. ratio of ninety per cent . Once debt rose above that level, they said, the average growth rate was negative 0.1 per cent.

Ninety per cent wasn’t just any old figure. With large budget deficits and debt-to-G.D.P. ratios in the range of sixty to eighty per cent, many advanced countries, including the United States and Britain, were fast approaching the threshold of doom, or so it seemed. If you took Reinhart and Rogoff’s findings at face value, as many people did, it was hard to argue with the Hooveresque logic of, say, Osborne.

It turns out , however, that the ninety per cent threshold is phooey: it doesn’t exist . When the Amherst economists reworked Reinhart and Rogoff’s calculations to take account of programming errors and data omissions , they came up with a figure of positive 2.2 per cent for average growth in countries with a debt- to-G.D.P. ratio of ninety per cent or more . That’s less than 3.2 per cent—the figure for countries with debt ratios of sixty to ninety per cent—but it’s not zero, or negative.

Some defenders of Reinhart and Rogoff point out that a shortfall in growth of one per cent a year eventually compounds into big differences in

living standards. That’s true, but there’s another note of caution about the data. If you eliminate from Reinhart and Rogoff’s sample countries with very high indebtedness—those with debt-to-G.D.P. ratios of more than a hundred and twenty per cent — and very low indebtedness— those with debt-to-G.D.P. ratios less than thirty per cent — the negative relationship between growth and debt is hard to discern . The scatterplot is all over the place, with perhaps a slight negative lean. In fact, after carrying out some formal tests, Herndon, Ash, and Pollin report that “ differences in average GDP growth in the categories 30-60 percent, 60-90 percent, and 90-120 percent cannot be statistically distinguished .”

Reinhart and Rogoff data is flawed – made a major excel coding errorMatthew Yglesias 13, "Austerity's Giant Embarrassing Error", 4-16-2013, Slate Magazine, http://www.slate.com/blogs/moneybox/2013/04/16/reinhart_rogoff_coding_error_austerity_policies_founded_on_bad_coding.html, Accessed sc.7-14-2017

So this is huge. Or, rather, it won't matter even a tiny little bit but it ought to be a big deal anyway. You've probably heard that countries with a high debt:GDP ratio suffer from slow economic growth. The specific number 90 percent has been invoked frequently. That's all thanks to a study conducted by Carmen Reinhardt and Kenneth Rogoff for their book This Time It's Different. But the results have been difficult for other researchers to replicate. Now three scholars at the University of Massachusetts have done so in "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff" and they find that the Reinhart/Rogoff result is based on opportunistic exclusion of Commonwealth data in the late-1940s, a debatable premise about how to weight the data , and most of all a sloppy Excel coding error .

Read Mike Konczal for the whole rundown, but I'll just focus on the spreadsheet part. At one point they set cell L51 equal to AVERAGE(L30:L44) when the correct procedure was AVERAGE(L30:L49). By

typing wrong, they accidentally left Denmark, Canada, Belgium, Austria, and Australia out of the average. When you fix the Excel error, a -0.1 percent growth rate turns into 0.2 percent growth .

This is literally the most influential article cited in public and policy debates about the importance of debt stabilization, so naturally this is going to change everything.

Or, rather, it will change nothing. As I've said many times, citations of the Reinhart/Rogoff result in a policy context obviously appeal to a fallacious form of causal inference . There is an overwhelming theoretical argument that slow real growth will lead to a high debt/GDP ratio and thus whether or not you can construct a dataset showing a correlation between the two tells us absolutely nothing about whether high debt loads lead to small growth. The correct causal inference doesn't rule out causation in the direction Reinhart and Rogoff believe in, but the kind of empirical study they've conducted couldn't possibly establish it. To give an example from another domain, you might genuinely wonder if short kids are more likely to end up malnourished because they're not good at fighting for food or something. A study where you conclude that short stature and malnourishment are correlated would give us zero information about this hypothesis, since everyone already knows that malnourishment leads to stunted growth. There might be causation in the other direction as well, but a correlation study woudn't tell you.

Uniqueness

2AC – Growth lowGrowth in 2017 will be low – aging population and low productivityAndrew Mayeda 6/27, "IMF Cuts U.S. Outlook, Calls Trump's Growth Target Unlikely", 6-27-2017, Bloomberg, https://www.bloomberg.com/news/articles/2017-06-27/imf-cuts-u-s-outlook-calls-trump-s-growth-target-unrealistic, Accessed sc.7-9-2017

The I nternational M onetary F und cut its outlook for the U.S. economy , removing   assumptions of President   Donald Trump ’s plans to cut taxes and boost infrastructure spending to spur growth.

The IMF [it] reduced its forecast for U.S. growth this year to 2.1 percent , from 2.3 percent in the fund’s April update to its world economic outlook. The Washington-based fund also cut its projection for U.S. growth next year to 2.1 percent, from 2.5 percent in April.

The world’s biggest economy will probably have a hard time hitting Trump’s target of 3 percent annual growth as it’s faced with problems ranging from an aging population to low productivity growth, and with a labor market already back at full employment, the fund said in its annual assessment of the U.S. economy released Tuesday.

Given broad uncertainty on policy, “we have removed the assumed fiscal stimulus from our forecast,” Alejandro Werner, director of the IMF’s Western Hemisphere Department, said at a press briefing in Washington.

The IMF’s assessment casts doubt over a more optimistic forecast in the White House   budget   proposal, which projects growth will accelerate to 3 percent by 2020 and keep up that pace for seven more years.   Even with an “ideal constellation of pro-growth policies, the potential growth dividend is likely to be less than that projected in the budget and will take longer to materialize,” the IMF said in a statement Tuesday.

2AC – Debt HighUS debt high now and expected to rise – Trump presidency doesn’t help Sahadi 17 – Jeanne Sahadi, Senior writer at CNNMoney, 3-30-2017, ("U.S. debt to double over the next 30 years " CNNMoney, http://money.cnn.com/2017/03/30/news/economy/debt-increase/index.html, Accessed 07-10-2017, JD)

Considering President Trump's push for big tax cuts and a promise not to touch key drivers of the debt , the picture could worsen . Right now the nation's debt amounts to 77% of GDP . That's already the highest level since the

post-World War II era. If current law remains in effect, it's on track to jump to 150% by 2047, according to the latest long-term budget projections from the CBO. The problem is that while both spending and revenue are projected to grow,

spending will far outpace revenue. The northward trajectory of spending is driven exclusively by two things: Spending on the biggest entitlement programs (primarily Medicare, Medicaid and Social Security) and interest on the debt. The major entitlement programs, which fall under the category of mandatory spending because the levels are determined by formulas and number of beneficiaries, account for 10.4% of GDP today. By 2047, the CBO projects they will grow to

15.5% a year. The president said many times -- and his surrogates have repeated his promise -- that he would not touch Medicare or Social Security. Interest on the debt , meanwhile, will almost quadruple -- from 1.4% today to 6.2% by 2047. That's due to rising rates and the

growing pile of borrowed money. Related: Why tax reform and tax cuts aren't the same thing By contrast, spending on all other mandatory programs and on discretionary programs (funding for which lawmakers decide on every year) are both on track to fall as a share of the economy. Strong economic growth can alleviate the country's debt burden somewhat. But the CBO is projecting real GDP increases of just 1.9% a year on average for the next 30 years. That's a percentage point lower than the average of the past 50 years, and far lower than the 4% annual growth promised by President Trump. The agency expects a slower rise in GDP thanks to slower growth of the labor force. That's mostly due to an aging population plus the fact that

the number of women in the workforce has stabilized after increasing for decades. The CBO also expects that rising federal debt will draw investors' money away from private investment. Trump policies may make the picture worse Trump has often complained about how high the country's debt is. But his policies and proposals don't do anything to address it . The first part of his 2018 budget proposal calls for big cuts to domestic programs -- the smallest part of the federal budget. But they would just pay for his proposed increases in defense spending. So the cuts, which would have a big effect on the programs, would be a wash in terms of deficits. Meanwhile, analyses of Trump's previous tax proposals found they could add $7 trillion to the debt in the first decade alone. Related: Trump budget bemoans $20 trillion debt but does bupkus about it The White House is now promising yet another tax reform proposal -- one which would offer tax cuts for the middle class and reduced tax rates and other changes to make businesses more competitive. But on Thursday, Press Secretary Sean Spicer said planning was still in the early stages so he couldn't say yet whether the final plan would be fully paid for or would add to deficits.

2AC – ThumperOther education regulations should have triggered it Levitin 17 – Daniel J. Levitin, Ph.D. is a cognitive neuroscientist and Founding Dean of Arts & Humanities at the Minerva Schools at KGI in San Francisco, 5-14-2017, ("The Regulations That Do Work," Daily Beast, http://www.thedailybeast.com/the-regulations-that-do-work//, Accessed 07-10-2017, JD)

The estimated 7,000 Board Certified Music Therapists in the U.S. undergo strict education and training requirements that are not new and qualify Board Certified Music Therapists (MT-BC) to practice side-by-side, and communicate and share treatment recor ds and outcomes with other credentialed and licensed health professionals. They serve in America’s hospitals, schools, nursing homes, forensic hospitals, military and veterans’ health facilities, and communities. Every MT-BC is obliged to adhere to a defined scope of practice and, as members of their professional associatio n ; they

must adhere to Standards of Practice and a Code of Ethics, similar to nurses, doctors, and other health professionals. I know of no evidence that music therapy licensure has increased the costs of services. Licensing protections have become an essential element for our healthcare and education systems. I agree that many of the licensing requirements in place may need to be revisited, and certainly some industries engage in cronyism or obfuscation. But music therapy seems like an obvious example were we, as a society would want licensing as a way to insure proper training. This would apply to cosmetology (to

prevent infections and the transmission of disease), funeral homes (to properly honor the dead), and dieticians (to prevent quackery). Licensing should also apply to colleges through accreditation, to prevent unscrupulous profiteers from offering an unaccredited education that does not meet

accepted standards. Licensing of music therapists has been called a regulatory bottleneck by opponents. But the real bottleneck to the economy occurs when we the public get harmed, either financially or physically, by those who lack expertise. The best defense against that is for each of us to learn to apply critical, evidence-based thinking. And our government can help by continuing to support licensing where it matters. Licensing is a sound way to ensure that we don't get taken advantage of by the unscrupulous or the unqualified

Link

Link Turn – Economy Spending more money on Education boosts economic growthCarmignani 16 – Fabrizio Carmignani, Head of Department, Accounting, Finance and Economics, Griffith Business School, 16, 6-2-2016 ("Does government spending on education promote economic growth?," Conversation, http://theconversation.com/does-government-spending-on-education-promote-economic-growth-60229, Accessed 07-06-2017, JD)

Economic growth is driven by new ideas, by discoveries that result in better products and more efficient production technologies.

Human capital is the engine of this process : a better educated labour force increases the return on r esearch and d evelopment and ensures that discoveries are more readily absorbed in the productive structure of the economy. In the end, more education equals more economic growth . Or so goes the theory. In practice, researchers and policymakers have often questioned the effective aggregate return of spending on education. Simply put, the question is: does government

spending on education promote economic growth? Some stylised facts Using data available from The World Bank’s World Development Indicators (WDI) database , it is possible to estimate the bivariate relationship between government education

expenditure and GDP across a large sample of countries. The estimates show that for every dollar the government spends on education, GDP grows on average by $20. When the estimate is run for Australia only, the multiplier is slightly higher: an extra

$1 of education expenditure increases Australian GDP by $21. While intuitively appealing, these results raise some questions. An obvious

concern is that a country with a larger GDP must also spend more on education . This introduces the risk of reverse causality; that is, the model might pick the effect of GDP size on education expenditure and not vice-versa. The graph below somewhat addresses this limitation. World Development Indicators of the World Bank In the chart, GDP is measured by its rate of annual growth between 2000 and 2010 and education expenditure is measured as a share of total GDP over the period 1990-99. This time lag reduces the risk of reverse causality. The dots indicate combinations of education expenditure and GDP growth for each of 151 countries for which data are available from the WDI. The red line provides the best statistical approximation of the bi-dimensional scatter plot. The positive slope indicates

that countries that spent more on education as a proportion of GDP in 1990-99 experienced faster growth in the subsequent decade . More precisely, an increase in education expenditure by 1 point of GDP (eg from 4.5% to

5.5%) increases GDP growth by 0.9 percentage points (eg from 4.5% to 5.4%).

Link Turn – Right to Education affEqual access to education ensures the long term competitiveness of the economyAlbada 10 – Michael Albada, Content Editor at The Stanford Progressive and analyst at Stanford research Institute, March 2010 (“The Other Economic Crisis: The Failure of Education and Its Consequences,” Stanford Progressive, https://web.stanford.edu/group/progressive/cgi-bin/?p=191, Accessed 07-07-2017, JD)

Even though the country is just pulling out of the Great Recession, a n even greater problem threatens to undermine the vitality of America’s

economy in the long term. The failure to invest in education , particularly at the primary and secondary levels , and to offer equal access to education, threatens the long-term competitiveness of the American economy . With the outsourcing of manufacturing and tech jobs to India and China, the developed countries face a challenge in staying economically competitive. Although America’s world class universities and elite private high schools ensure that the wealthiest

children receive outstanding educations, far too many working and middle class children are not getting the educations they need and deserve . By not making it to college, these kids who should become primary-care doctors,

nurses, and teachers, all professions which are sorely hurting for workers, will end up in jail, fighting America’s wars, and working endlessly in low-paying jobs with no hope of ever becoming middle class . This state of affairs is bad for the individual, the community, the state, the economy, and society at large . The kinds of jobs that will buttress the American economy are those which depend on a highly educated workforce across all lines of race, class, and gender. Sadly, this is something that America is failing to accomplish to provide.

The American education system is failing. A recent report released by the University of Chicago titled “Left Behind in America: The Nations Dropout Crisis” gave a scathing indictment of educational performance in this country. According to the report, nearly 6.2 million students in the U.S. between the ages of 16 and 24 in 2007 dropped out of high school, which is more than 16 percent of all Americans in that age range. According to a recent UNICEF report, America’s graduation rate had fallen to 21st out of 27 industrialized countries, just behind Slovakia. In addition to rising dropout rates, the quality of education has also declined. In a ranking of 15-year-olds from 30 industrialized countries, American students scored just 21st in science and 25th in math.

The main cause of this problem is not how much money is spent on education, but rather how the available funds are used. The U.S. spends an average of $9,963 per student per year, the third highest in the world behind Austria and Switzerland. Discrepancies are enormous between school districts, the wealthiest of which rely on additional donations from parents to subsidize high-quality public education only in their district, and in states like California parents have simply pulled their children out of public schools and placed them into

private ones, removing many students whose parents could have contributed to the well being of the school by being active and injecting their money and resources. Although some states (such as California) are truly underfunded, in

most states the problem is simply that the money available is not being used effectively. Were the huge inequalities in the U.S. education system to be even modestly leveled out, we would witness large gains in learning and test scores across the board.

Centralization, at the state if not the federal level, would be a big step in the right direction.

These investments for education will more than pay for themselves in the mid- to long - term . With each degree earned average earnings increase, so that when poor kids fail to go to college or worse, fail to finish high school their chances of earning a middle

class income, and being higher paid contributors to taxes, decrease in this workforce were education is key. By shortchanging the poorest students, the state and federal governments are shooting themselves in the foot by decreasing their tax revenue for years to come.

Additionally, in today’s increasingly global economy , education is becoming a necessary component for innovation, growth and development . Investment in education is investment in human capital, and lack of the former equals a lack of the latter. Underinvestment in human capital will amount to a tax on the future of this country and could

sabotage the ability of younger generations, particularly the brightest poor kids, to get ahead. The price of education is the cost of competitiveness in tomorrow’s economy , and it is in all Americans’ enlightened self-interest to invest in our future.

Within any capitalist democracy, the twin values of liberty and equality exist in tension. The great compromise that was struck gave room for

both: equality of opportunity. No matter how poor you were, you could work hard and make it big. The American Dream is what makes

out country great, but if we fail to provide quality education to all in this highly globalized information-based

economy, we will continue to witness the continued evaporation of that Dream into a n America of parallel societies and a permanent underclass with no hope of success.

Link Turn – CompetitivenessSpending money on Education boost economic growth and competitiveness Sims 4 – Richard G. Sims – Chief Economist at the Sierra Institute on Applied Economics and NEA’s chief economist, April 2004 (“School Funding, Taxes, and Economic Growth An Analysis of the 50 States,” NEA [National Education Association] RESEARCH WORKING PAPER, http://www.nea.org/assets/docs/HE/schoolfunding.pdf, Accessed 07-06-2017, JD)

Among all of the budgetary options facing state or governments, education stands out as one to which voters consistently favor devoting more resources and personnel. The local education system also factors into businesses’ location

decisions (see, e.g., Jacobson 2002). Public and business support for education is generally not based on the number of education jobs the spending creates but on the idea that perceptions of the community are improved

because of its e xpanded educational effort and on expectations that students in the area will have greater future earning power. In economic terms, the increased education spending embodies two compelling features: first, the increased economic competitiveness and general desirability of areas where schools improve; and, second, the increased productivity that added educational support instills in future workers. The competitiveness aspect of education spending is predicated on the fact that people and businesses prefer to locate in areas with comparatively better schools . Increased education spending makes a community a more desirable place to live and work, and

thus more people move there. An increase in the region’s attractiveness also means that workers will be more willing to accept employment in the area at relatively lower wages than before or than they might get elsewhere. The expanded labor force in the area makes it easier and less expensive for employers to find qualified workers and holds down

regional employment costs for employers. The increase in the potential workforce thus boosts the long-term productivity and competitiveness of the region. The quality-of-life factors in a region’s “attractiveness,” its amenity

value, influence a region’s competitiveness and growth potential.

Impact

AT: Dollar HegThe strength of the dollar is extremely high now – trumps promised fiscal-stimulus measures and increase consumer spendingAdinolfi & Beals 17 – Joseph Adinolfi, a markets reporter and copy editor at MarketWatch. His work has also appeared in The Wall Street Journal, The Hartford Courant, Connecticut News Junkie and other publications. Rachel Koning Beals, a MarketWatch news editor in Chicago. March 28, 2017 ("Dollar turns higher as consumer-confidence reading boosts stocks," MarketWatch, http://www.marketwatch.com/story/dollar-rebounds-in-step-with-stocks-attempt-to-halt-skid-2017-03-28, Accessed 07-11-2017, JD)

The dollar strengthened against its main rivals on Tuesday after consumer confidence in March soared to its highest level in more than 16 years , helping to send Treasury yields and stocks higher.

The Conference Board said it Consumer Confidence Index leapt to 125.6 in March from 116.1 in February, surpassing economists’ expectations for a 114.1, according to a survey conducted by MarketWatch.

Its reading helped allay fears about sluggish economic growth in the first quarter, suggesting that the apparent weakness in consumer spending during the first quarter will prove short-lived , according to Capital Economics. The Atlanta Fed’s GDPNow tracker is presently projecting gross-domestic-product growth of just 1% during the first quarter.

The euro EURUSD, -0.0702% fell to $1.0811 late Tuesday in New York, compared with $1.0864 late Monday, while the dollar USDJPY, +0.17% climbed to ¥111.10 late Tuesday, compared with ¥110.66 late Tuesday.

Federal Reserve Vice Chairman Stanley Fischer also helped support the greenback by saying during an interview with CNBC that he expects the Fed to raise rates at least two more times this year. Two more rate hikes in 2017 seem “about right, that is my forecast,” Fischer said.

Several other Fed officials, including Chairwoman Janet Yellen, also delivered public remarks on Tuesday, but the market participants mainly focused on Fischer’s comments.

Earlier, the dollar had weakened as investors questioned whether President Donald Trump would be able to garner enough support among fractious congressional Republicans to pass tax cuts and infrastructure spending.

The dollar shot higher after Trump’s upset victory in the Nov. 8 U.S. election, t hanks in part to the perception that his promised fiscal-stimulus measures would bolster growth and inflation, allowing the Federal Reserve to raise interest rates more quickly.

But the greenback has erased some of those gains since the beginning of the year as investors bet that the market was too quick to price in the potential economic impact of Trump’s policies. Typically, higher interest rates, or the expectation that rates will rise, will cause a currency to strengthen by increasing the return on assets denominated in it.

Last week, House Republicans withdrew a plan to repeal and replace Obamacare amid opposition from conservatives and some centrists within their own party , shaking investor confidence in Trump’s ability to gain passage of other parts of his agenda.

Debt Ceiling

Congress raise debt ceilingCongress will raise debt ceilingLawder 17 – David Lawder, Reuters global economy, trade, IMF correspondent6-1-2017, "Treasury chief 'confident' Congress will raise U.S. debt limit," Reuters, http://www.reuters.com/article/us-usa-debt-mnuchin-idUSKBN18S6FU

WASHINGTON (Reuters) - U.S. Treasury Secretary Steven Mnuchin said on Thursday he was confident that Congress would raise the federal debt limit "before there's an issue" with U.S. creditworthiness, and he pledged that the Trump administration's tax reform plans would be paid for. "We're going to get it increased," Mnuchin told Fox Business Network about the debt limit. "The credit of the United States is the utmost. I've said to Congress they should do it as quickly as they can. But we are very focused on working with them and I'm confident we'll get there before there's an issue." Mnuchin said last week that he wanted a "clean" debt ceiling increase before the start of Congress' summer recess in early August. Mnuchin said that it "makes no sense" to view the Trump administration's tax reform plans through a "static" budget analysis that does not account for economic growth effects. He has previously pledged that increased economic growth would generate more revenue to offset lower tax rates. "We're about creating economic growth, we're about broadening the base and we're going to make sure that this is tax reform, not just tax cuts, and that they're paid for," Mnuchin said.

Congress will raise the ceiling – they’ll tie it to veterans fundingRubin et. al 17 – Richard Rubin, the U.S. tax policy reporter for The Wall Street Journal in Washington, focusing on the intersection of taxes, politics and economics., Nick Timiraos, national economics correspondent for The Wall Street Journal in Washington, D.C. He has covered the housing bust and the government's response to the mortgage crisis, and Kristina Peterson, covers Congress from the Wall Street Journal's Washington bureau, 7-14-2017, "GOP May Tie Debt-Limit Increase to Veterans Bill ," WSJ, https://www.wsj.com/articles/gop-may-tie-debt-limit-increase-to-veterans-bill-1500050835

WASHINGTON -- Republicans are considering tying a must-pass increase in the federal debt limit to funding for a program that lets military veterans get medical care outside of Veterans Affairs facilities, people familiar with the idea said. The legislative move, still in the early stages of discussion on Capitol Hill, would let Republicans claim a policy victory while raising the federal borrowing cap. The federal government has already hit the debt limit, which had been suspended until March and was then reset at $19.8 trillion. The Treasury Department is using so-called "extraordinary measures" or emergency cash-conservation steps, to pay the government's bills for now. The government's ability to use those tools is expected to run out in early-to-mid-October, according to the Congressional Budget Office. The Treasury Department's cash balance, however, could drop to very low levels in early September, which this spring prompted warnings about potentially raising the debt limit before the August congressional recess. Without an increase, the government would start missing promised payments, such as interest on the national debt, paychecks for federal workers and benefits for recipients of Social Security and other programs. The administration has urged Congress to act quickly. The debt-limit vote is often challenging for lawmakers . Although the vote merely allows the government to pay the bills stemming from past spending and tax decisions, it can appear to voters and political opponents like a vote for more debt. The upcoming debt-limit vote will be the first once since March 2006 with Republicans in control of the House, Senate and White House. Raising the limit will bring little joy for Republicans , many of whom want to tie spending cuts or other fiscal restraints to the debt limit. As a result, the debt limit is likely to be attached to other must-pass legislation or to something like the veterans bill that is politically popular . House Veterans Affairs Committee

Chairman Phil Roe (R., Tenn.) said Friday he could see the logic of pairing the veterans bill with raising the debt limit, traditionally a tough vote for many Republicans . "You know how this place works: You always stick something people love onto something people hate, " Mr. Roe said. "Obviously something that has to be done -- that's what we always do to get the debt ceiling" raised , he said. Mr. Roe noted that GOP leaders hadn't discussed with him the idea of pairing the bills. Congress created the Veterans Choice program in response to long wait times for medical care at VA facilities. President Donald Trump signed legislation earlier this year that eliminated an Aug. 7 expiration and extended authorization for the program until it runs out of the $10 billion that Congress put in the program in 2014. That account was down to $821 million in mid-June, Veterans Affairs Secretary David Shulkin told a Senate committee. Mr. Shulkin said then that the program will "dry up by mid-August" without the ability to transfer money from one VA account to another. That could create pressure on Congress to act before the August recess. Congressional leaders haven't announced their plans for the debt limit, though Senate Majority Leader Mitch McConnell (R., Ky.) has delayed the chamber's August recess by two weeks, and said the debt limit was on the legislative agenda for that period. They are expected to seek an increase that is large enough to avoid having another vote before the 2018 election. Orrin Hatch (R., Utah), the chairman of the Senate Finance Committee "is working with the administration to get more details on what the appropriate time will be for Congress to act to raise the debt ceiling and is continuing to work with his colleagues in Congress to find a viable path forward to achieve this goal," said his spokeswoman, Julia Lawless.

Congress won’t raise debt ceilingDebt Ceiling won’t be raised – constituents hate itKocherlakota 17 – Narayana Kocherlakota, Professor of Economics at University of Rocheste 17, 7-6-2017, "Someday Congress Won't Raise the Debt Ceiling," Bloomberg, https://www.bloomberg.com/view/articles/2017-07-06/someday-congress-won-t-raise-the-debt-ceiling

Treasury Secretary Steve Mnuchin has asked Congress to raise the federal debt limit above the ceiling imposed by legislators two years ago. According to a recent survey, only a small fraction of the American people support an increase. In contrast, a 2013 survey found the vast majority of economists would like to scrap the debt ceiling. Here’s how I interpret what the economists were saying: Congress has the power to make tax and spending decisions . Those decisions typically result in a budget deficit , meaning that the government has to take on a growing amount of debt . But there’s no need to have a separate law to cap the size of the debt : If Congress doesn’t want to it to keep growing, it just needs to spend less, tax more or some combination of the two . Here’s how I interpret what the non-economists are saying: We worry about the economic consequences of the federal debt get ting to large relative to the size of the economy. So it makes sense to us to have a law that impose s a cap on government debt . The problem is that Congress systematically breaks its own ceiling by making spending and tax commitments that will push the national debt above the statutory limit. Not raising the debt ceiling simply means that Congress will be forced to obey the law by rapidly unwinding those past spending commitments. In my view, both perspectives have some validity. The economists are undoubtedly right that failing to raise the debt ceiling this summer, or at any point in the future, will cause many short term challenges for the economy. We got a taste of these problems in the summer of 2011 when financial markets became nervous that Congress wouldn’t raise the debt ceiling in a timely fashion. However, some voters may well see these same economic costs as having longer-term benefits. These voters want to have a credible and durable cap on the size of the federal debt relative to the size of the overall economy. Many of them likely recognize that not raising the debt ceiling this summer would cause large economic dislocations. But their hope is that in the future, the prospect of this very economic pain would be an incentive for Congress to ensure that spending and tax commitments conform to the statutory debt ceiling . These voters would then have a way to ensure that the ratio of federal debt to gross domestic product doesn’t get larger than they want . My own prediction is that Congress will yield to the administration’s demands and raise the debt ceiling sometime this summer. But the aging of our population means that the federal debt is only going to grow, and it would be surprising to me if voter concerns about the debt didn’t keep pace. If economists don’t like the debt ceiling, they’d better come up with some other mechanism that will allow voters to impose a credible cap on the size of the national debt. Otherwise, I expect that, sometime in the next decade, Congress is likely to yield to constituent pressures and not raise the debt ceiling , despite the attendant economic turmoil that is sure to ensue.

Debt Ceiling won’t be raised – democratic support keyHughes 17 – Siobhan Hughes, Capitol Hill reporter, The Wall Street Journal, 6-2-2017, "Pelosi Says Democrats Won’t Rubber Stamp Debt-Ceiling Increase," WSJ, https://blogs.wsj.com/washwire/2017/06/02/pelosi-says-democrats-wont-rubber-stamp-debt-ceiling-increase/

House Minority Leader Nancy Pelosi (D., Calif.) on Friday stopped short of giving unconditional support to an increase in the U.S. borrowing limit , potentially complicating efforts in Congress to raise the debt ceiling this year . For years, Democrats have backed raising the borrowing limit with no conditions, saying that the country must pay for debts already incurred. Their support is critical , as Republican leaders have relied on Democratic votes to ensure that the U.S. can continue to pay its obligations, amid splits in Republican ranks over whether to use the cap increase as leverage to force spending reductions. In remarks to reporters, Mrs. Pelosi didn’t say she would oppose increasing the debt ceiling. But the House Democratic leader suggested that her party might not be the reliable partner that it was during the presidency of Barack Obama. Mrs. Pelosi said she was worried that Republicans would use a debt-ceiling increase as a way to make room for deficits produced by tax cuts. “I don’t have any intention of supporting a lifting of the debt ceiling to enable the Republicans to give another tax break to the wealthy in our country,” Mrs. Pelosi told reporters when asked if she would support an increase in the borrowing limit with no strings attached. Senate Minority Leader Chuck Schumer (D., N.Y.) earlier this week suggested to Mrs. Pelosi the idea of using the vote on the borrowing limit to block any GOP tax plan from benefiting the wealthy, a Senate Democratic leadership aide said. Mr. Schumer hasn’t yet briefed the Democratic caucus on the idea. The House Freedom Caucus, a group of GOP conservatives who take a hard line on deficit spending, recently insisted that any borrowing-cap increase this year be paired with spending limits. That statement came after Treasury Secretary Steven Mnuchin urged Congress to raise the borrowing limit before its August recess and said he preferred a clean bill with no strings attached. The Treasury has employed cash-conservation measures to keep paying its bills since mid-March, when government debt hit Congress’s self-imposed limit. Analysts expect those measures will allow the Treasury to keep paying its bills until the fall. With roughly three dozen members, the House Freedom Caucus has enough members to block Republicans from passing legislation with only GOP support. With three vacancies in the House, Republicans hold 239 seats compared with 193 for Democrats, meaning the party can lose only 22 GOP votes and still assemble the 217-vote majority needed to pass bills on a party-line basis. House Speaker Paul Ryan (R., Wis.) could attempt to satisfy the hard-line wing of his caucus and advance debt-ceiling legislation that is conditioned on cutting or limiting spending. Even if such legislation passed the House, it could be blocked in the Senate, where Republicans control 52 seats but need 60 votes to pass most legislation. Another option would be to raising the debt ceiling using a rarely available procedural tool that requires only a simple majority for passage through each chamber. It isn’t clear whether that approach is one that Republicans are considering. Separately, White House budget director Mick Mulvaney said Friday the U.S. won’t default on its debt payments even if Congress fails to raise the federal borrowing limit before the government runs out of money to pay its bills.