Mick Mulvaney is a Republican House member from South Carolina who, if confirmed by the United States Senate, will serve as Donald Trump’s director of the Office of Management and Budget. Mulvaney isn’t a Trump crony, and he’s not part of any kind of weird alt-right white nationalist faction. As best as anyone knows, he has no shady ties to the Russian government.
But he is a little bit of an odd choice. He’s not even on the budget committee, which, like the OMB, does a lot of work related to the federal budget. And unfortunately for America (and, to an extent, the world writ large), his stated views on a number of crucial economic policy questions are absurd. If implemented, they could have terrible consequences for the American economy.
Mick Mulvaney has odd views about government debt
Mulvaney entered Congress after the 2010 midterm elections and immediately made his mark with the eccentric view that there was no need for periodic increases in the federal government’s statutory debt ceiling.
Legally speaking, the federal government only collects a certain amount of taxes in any given year. At the same time, the federal government is legally required by Congress to spend a certain amount of money on various functions. The gap is closed by selling bonds. But bond sales, too, have to be authorized by law. Congress does this by directing the Treasury Department to borrow as much as it needs up to such-and-such an amount, and then leaving the precise details up to the Treasury staff.
But sometimes Treasury needs more borrowing authority, necessitating action by Congress to further increase the limit. Opposition members of Congress often seize this opportunity to grandstand about irresponsible budgeting, but practically speaking, granting the authority is essential. Without it, the country would face an interlocking financial and legal crisis, in which the government has no legal means to obtain the funds needed to meet its legal obligations.
Mulvaney was unimpressed. “I have heard people say that if we don’t do it it will be the end of the world,” he told the Hill in 2010. “I have yet to meet someone who can articulate the negative consequences.”
Rather than ask someone to explain it to him, Mulvaney simply chose to wallow in ignorance, and a few weeks later he popped up on Fox News saying again that he didn’t see what the big deal was. When a deal was eventually reached, Mulvaney voted against it, warning darkly that excessive debt threatened the country.
Six months later, he once again denounced lifting the debt ceiling. This time, he revealed a different kind of fundamental ignorance about how federal debt works, asking rhetorically, “Does the president really ever intend to pay it back?” and wondering why the Obama administration doesn’t submit a budget that “produces a surplus that generates the money with which to repay the debt that he's asking us to take on today.”
People who lend money to the US government, of course, get paid back. But the federal government itself, in practice, never pays its total debts down to zero. The government, after all, is immortal, and the overall US economy grows over time, so there’s no reason it can’t keep rolling debts forward. Indeed, US government bonds are a very useful financial commodity that play a variety of critical roles in domestic and global financial markets. If the debt were fully repaid and the bonds all disappeared from the market, we would miss them.
Mick Mulvaney has weird ideas about the Fed and Zika
Mother Jones reporter Pema Levy, along with the Democratic opposition research group American Bridge, has uncovered some further peculiar beliefs of Mulvaney’s.
For example, while speaking to the fringe-right conspiracist group the John Birch Society in July, Mulvaney claimed the Federal Reserve had “effectively devalued the dollar.” In fact, at the time he spoke, the Fed had presided over two straight years of rapid dollar appreciation against other world currencies and a years-long span of inflation that was below the central bank’s target rate.
This is a somewhat obscure-sounding topic, but it’s directly relevant to Trumpian economic themes. The runup in the value of the dollar that Mulvaney didn’t realize was happening played a crucial role in the stalling out of American job creation in the manufacturing sector. From 2010 through to 2014, employment in manufacturing grew steadily alongside overall growth in employment as the economy recovered from the Great Recession. For the past two years, however, manufacturing employment has fallen slightly even while overall job growth has been decent. The rapid rise in the value of the dollar — which makes the United States an unattractive location in which to make things that are tradable globally — has played a key role in this.
If Mulvaney were to push up the value of the dollar further, he would further harm the manufacturing sector.
His view, however, was that the Fed’s alleged devaluation had “choke[d] off economic growth,” and that people should look instead to Bitcoin as a currency that is “not manipulatable by any government.”
Levy also notes that, separately, Mulvaney authored a Facebook post in which he questioned whether the government should play any role in scientific research (“do we need government-funded research at all”) and also called into question the link between the Zika virus and microcephaly birth defects.
Now, to be clear, global financial markets have not reacted to Mulvaney’s appointment the way you would expect them to react to news that a top economic policy official in the American government wants to sharply increase the value of the dollar and/or default on the national debt.
There are several possible explanations for this:
- One is that since a debt default would greatly reduce the value of the dollar, markets see Mulvaney’s odd but contradictory views as standing in perfect equipoise, with the one balancing out the other.
- Another is that financial markets believe Trump appointed Mulvaney to be his OMB director but has no intention of listening to him on important matters of economic policy. Instead, decisions will be made by Treasury Secretary Steve Mnuchin and National Economic Council head Gary Cohn, neither of whom has a long public record detailing views on important policy matters, but both of whom worked at Goldman Sachs and probably understand how bond markets work.
- Markets figure Mulvaney was just kidding (or lying) about this stuff — talking nonsense to sabotage the Obama administration. Now that Donald Trump is in the White House and Mulvaney has a seat at the table, he will begin espousing different more reasonable views.
- Last but by no means least, it’s possible that financial markets are simply bad at accounting for the possibility of disaster. Perhaps a president who has mused about a strategic default on the national debt tapped a budget director who says defaulting on the national debt might not be so bad because this is how he actually intends to govern the country, but traders simply can’t contemplate it.
OMB director is a White House post, but the job is subject to Senate confirmation. Consequently, Senate Democrats will have the opportunity to probe Mulvaney’s views on these matters — along with his vow to “end Medicare as we know it” and his denunciation of Social Security as a “Ponzi scheme” — so the American people can get a clearer sense of what it is we’re in for.