Good morning.

Do government deficits matter? That’s a debate that goes back as far as Thomas Jefferson, and also has haunted a good part of my career. I covered the supply siders who said tax cuts would pay for themselves, and Bob Dole, when he cleaned up the mess that resulted. I was there when George H.W. Bush backed off his “read my lips” pledge—and forfeited a second term as a result. And I joined those who cheered on Alan Simpson and Erskine Bowles when they forged a bipartisan plan to achieve “fiscal sustainability” —with no result.

And as President Biden’s term begins today, the great debate returns anew. Even before getting sworn in, the new President has proposed a whopping $1.9 trillion rescue package. And that’s just the beginning. With education, infrastructure and climate change proposals all on their way, spending only will swell from there. Biden has said taxes on the wealthy will pay for some of this. But we’ve seen this movie before. The surest way for a divided Washington to reach compromise on big spending plans is the old-fashioned way—with debt.

Does it matter? Old-time Cassandras, myself included, used to argue that big deficits would “crowd out” private investment, soak up savings, and push up interest rates. But today, interest rates are effectively zero—and financial markets seem to believe they will stay that way for decades. Government debt has passed the pull-your-hair-out benchmark of 100% of GDP, but low rates have kept debt service comfortably below 2% of GDP. As former Treasury Secretary Lawrence Summers told the Economic Club of New York yesterday, the government, if it wanted to, could lock in low interest rates for the foreseeable future with 30-year debt.

Fortune’s Shawn Tully is one who warns that low rates won’t last forever, here. But Summers and his colleague Jason Furman say something fundamental has changed. The world is awash in capital. Spending it on long overdue investments in things like infrastructure, research, education and training is not just possible—it’s necessary. The big challenge of the next decade will not be balancing the budget—it will be absorbing the world’s excess savings. And because of that, smart government investments will pay for themselves, more surely than Arthur Laffer’s tax cuts. (You can read the Summers-Furman paper here.)

Biden’s Treasury nominee Janet Yellen seems to agree. In her confirmation hearing yesterday, she said now is the time to “act big” to shore up the economy. Just how big remains to be seen. But count on this being one of the most important debates of 2021, with the future of the U.S. economy hanging in the balance.

More news below. And at Fortune this morning, we have a couple of CEO commentaries worth your attention. HP CEO Enrique Lores, who was sworn in as a citizen just before the holidays, calls for sensible immigration reform, here. And Harvard guru and former Medtronic CEO Bill George lays out his agenda for the new administration, with a heavy emphasis on worker retraining and green energy, here. Spending on smart investments, George says—echoing Summers and Furman—will “help bring our deficit under control.”

Alan Murray
@alansmurray
alan.murray@fortune.com

TOP NEWS

Trump pardons

President Trump issued a flurry of last-minute pardons yesterday, including one for former advisor and alleged Trump-supporter-defrauder Steve Bannon, one for Republican fundraiser Elliott Broidy, one for alleged cyberstalker and Jared Kushner associate Ken Kurson, and two for rappers Lil Wayne and Kodak Black. He did not, however, try to issue any pardons for himself, his family, or Republican lawmakers—legal advisors reportedly told him this would be a bad idea. Fortune

Jack's back

Oh look, there's Jack Ma, appearing via video at a philanthropy event. The Alibaba founder hadn't been seen for a couple months, sparking concerns over his fate, but it seems he's around, and Alibaba's share price jumped as much as 11% on the news, even though he no longer has a formal role at the tech giant. Fortune

Genocide designation

The U.S. has designated China's treatment of the Uyghurs in Xinjiang province as a genocide. Secretary of State Mike Pompeo announced the move just before the Biden team takes over—it could have implications for the Biden administration's policies regarding China, though Biden himself has already said he favors the "genocide" label. Fortune

Google ethics

Google is reportedly investigating another of its top AI ethicists, following the controversial ouster of researcher Timnit Gebru. This time it's Margaret Mitchell, who helps lead the AI ethics team; she had reportedly used automated scripts to search her messages for examples of discriminatory treatment of Gebru. Google confirms that Mitchell's email account has since been locked. Axios

AROUND THE WATER COOLER

Chinese coal

President Xi Jinping may have pledged to have Chinese carbon emissions peak within the next decade, but Inner Mongolia, the country's top coal-producing region, green-lit twice and many coal-fired power plants in 2020 than it did the year before. Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air. "What's happening here is a last-minute effort by coal-dependent local governments and state firms to lock [in] as much polluting capacity as possible before emissions are due to peak and decline." Fortune

German lockdown

Germany has extended its current lockdown until mid-February, and introduced a mandate for people to wear medical-grade masks on public transport and in shops. Employers who require workers to come into the workplace, rather than working from home, will in future also have to provide them with medical-grade masks. The Local Germany

Facts over PACs

What can CEOs do to fix the U.S.? Two ideas, according to former GWB assistant Tucker Eskey, would be to promote civics education and media literacy. He recommends making major donations to the News Literacy Project. Fortune

Networking differences

Women and men are networking very differently during the pandemic, writes S. Mitra Kalita in a Fortune piece. She writes that men's networking tends to be more transactional, while women shoot more for conversation and community: "That women have hung onto networks is a rare spot of positive news for them in the pandemic." Fortune

This edition of CEO Daily was edited by David Meyer.