Kristalina Georgieva, managing director of the International Monetary Fund (IMF), recently warned about the danger from the United States government’s high debt level. She also criticized some government officials, such as US Treasury Secretary Scott Bessent, for believing that economic growth can make the debt problem disappear.
The idea that tax cuts, deregulation, and a slightly less destructive monetary policy can produce enough economic growth to eliminate deficits has been an article of faith among many conservative economists and Republican politicians since the late seventies. An insight of supply-side economists is that, since cutting taxes incentivizes people to work and invest, government can increase revenue by cutting taxes. Over time, the growth produced by low tax rates is expected to enable government to reduce or even eliminate its debt without making spending cuts. This theory benefits Republicans who can campaign promising to cut taxes while avoiding discussing what may be unpopular spending cuts.
One of the problems with this theory is deficit spending itself inhibits economic growth by causing the Federal Reserve to monetize the federal debt. The Fed lowering interest rates and increasing the money supply distorts the signal interest rates send to market actors. This distortion causes the boom-bust cycle that plagues the American economy.
The main reason why increasing revenue does not reduce government debt is because Congress will inevitably spend the new revenue rather than use it to reduce the debt. This is because the interests benefiting from increased warfare and welfare spending are numerous and influential while the supporters of limited, constitutional, and fiscally responsible government are comparatively few and noninfluential.
Secretary Bessent says the Trump administration will also eliminate debt via spending restraint. However, the Republican Congress and President Trump have increased the national debt by approximately four trillion dollars since President Trump assumed office in January of 2025.
Concerns over the increase in debt have helped drive interest rates on Treasury bonds to amounts not seen in over twenty years.
The skyrocketing federal debt and resulting monetization of that debt are reasons Americans struggle with continuously increasing prices. Americans are now experiencing high gas prices thanks to President Trump’s unconstitutional Iran War, while other prices have risen because of President Trump’s tariffs.
Price increases are a main reason the Republicans may lose control of Congress this year. According to a Harris poll, prices are a top concern of voters and even the majority of Republicans do not believe the economy is improving.
Many people who are planning to vote for Democrats this year voted Republican in 2024 because they believed President Trump’s promise to end price inflation. Now, disillusionment with the Republicans is causing some of them to vote for admitted socialists. Much of what Republicans are offering voters as an alternative is corporatism. The only way out of this phony choice between socialism and corporatism is for a critical mass of people to reject both and embrace liberty.
