Good morning.
Do deficits matter?
I have spent much of my career in the vicinity of that question, having covered U.S. fiscal policy as a cub reporter in the 1980s. That’s when supply-side Republicans dropped their concerns about deficits to push tax cuts as a counter to Democrats who had already abandoned deficit concerns to push spending increases. A stalwart but steadily shrinking group of people continued to beat the deficit drum, arguing deficit spending would “crowd out” private investment. But the new millennium obliterated that argument, too, by making capital plentiful and free. “Crowding out” went the way of the Walkman.
Well, suddenly, they’re back. Deficits, that is. I’m not sure the last time a deficit story led the New York Times, but yesterday morning, it did. The story quoted new Congressional Budget Office projections showing a combination of pandemic-era spending, aging boomers and rising interest rates would add $19 trillion to the U.S. national debt over the next decade—$3 trillion more than previously forecast. Total debt outstanding will equal the total economic output of the U.S. economy next year and reach 118% of GDP in 2033.
Meanwhile, “crowding out” has taken on new meaning. It’s not that deficits might crowd out private investment—the case for that remains weak, given inflation-adjusted interest rates that are still close to zero. Rather, the new numbers show that as nominal rates rise, servicing the debt will rise faster than tax income, eating up more and more of the federal budget, and leaving less money to address real needs.
So what’s to be done? With a vibrant economy and a functioning federal government, the problem is solvable. The Committee for Economic Development, which is part of The Conference Board, laid out a reasonable road map earlier this week, which you can explore here. (Full disclosure: My wife is president of CED.) But while the U.S. has a vibrant economy, it still lacks a functioning government. Deficit reduction involves shared sacrifice, and that has to be done on a bipartisan basis. Don’t hold your breath.
More news below. And don’t get too excited about the uptick in home prices at the start of this year. Fortune’s Lance Lambert says they are headed south again.
Alan Murray
@alansmurray
alan.murray@fortune.com
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TOP NEWS
Wojcicki resigns
One of the most powerful women in Silicon Valley, Susan Wojcicki, is stepping down as YouTube CEO after nine years in the role. Her replacement will be chief product officer Neal Mohan. Wojcicki—who, fun fact, was Google’s landlord quarter of a century ago—said she would “start a new chapter focused on my family, health, and personal projects I’m passionate about.” Fortune
Uniper hit
Uniper, which was until last year Europe’s biggest importer of natural gas, lost a whopping €19 billion ($20.2 billion) last year, due to fallout from Russia’s war in Ukraine. The German giant revealed it has lost control of its Russian power-generation unit, Unipro, resulting in a €4.4 billion hit. The German government bailed the company out last year to keep it afloat, nationalizing it in the process. Financial Times
TikTok data
TikTok, which had already committed to building a new data center in Europe, has now said it plans to build another two as well. The Chinese social-media sensation is trying to calm officials’ fears over the export of personal data to China. Two of the data centers will be in Ireland; it’s not clear where the third will be located. Wall Street Journal
AROUND THE WATERCOOLER
Microsoft may limit how long people can talk to its ChatGPT-powered Bing because the A.I. bot gets emotional if it works for too long, by Prarthana Prakash
Former Googler pulls back the curtain on a bureaucratic ‘maze’—and lambastes bosses and employees for losing sight of what’s important, by Steve Mollman
Amid a chemical stench, EPA chief asks worried residents at Ohio train derailment site to ‘trust the government’, by Associated Press
This edition of CEO Daily was edited by David Meyer.
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