As the official federal debt hit the $40 trillion mark and attracted a lot of negative publicity, Treasury Secretary Scott Bessent tried to reassure CNBC's Sara Eisen in an August 20 interview that there is nothing to worry about:

Well, yes, I mean, look, Sara, there's nothing magic about the $40 trillion number. And we can grow our way out of that. So, but what we do want to signal is, I think that there's been a lot of misinformation in terms of what's going on with the deficit, what's going on with the deficit to GDP. We actually had a fiscal consolidation for the calendar year 2025. We had, we are at about 5.7 percent of GDP. And one of the things that's temporary here that's influencing the deficit has been these tariff refunds. And we won't have to do that again. . . . The other big item in the budget that we're seeing is the hit that we're taking from, to revenues for the immediate expensing of factories and of equipment and farm structures. And I think that, if people sit back and think, that's not government spending. That is actually an investment in the future and we're increasing the tax base. And that's how, that is what measures the wealth of a nation, is the ability to increase after-tax return on capital. So we're pulling back the, think of it as pulling back the slingshot here. We have a lot of potential energy that will turn into kinetic energy during this year, next year, as these factories come online.

While Republicans have long been chanting "voodoo economics" incantations (i.e., claiming that increased growth happens in spite of federal deficit surges caused by tax reductions, so tax revenues will eventually catch up to spending over the long run), Bessent's remark does represent a new wrinkle on this theme. Here Bessent focuses attention on the ratio of the official budget deficit to GDP, as if the official budget is the only relevant factor affecting the future growth of total public debt and as if a short-run increase in GDP is a strongly positive indicator of the economy's long-run ability to sustain increased taxes.

The most basic objection to Bessent's argument (and indeed to the older versions of "supply-side" voodoo as well) is that it doesn't make any fundamental difference in the physical quantity of capital goods if private savings are consumed by higher deficits instead of being consumed by higher taxes. Either way, the labor and natural resources that otherwise could have been devoted to increased net capital accumulation are instead diverted towards increased present consumption and/or increased governmental malinvestments. Giving a tax break to encourage greater investment without corresponding decreases in government spending is self-defeating, since increased deficits divert the additional savings away from private businesses towards the government and its clients and minions.

We can see through the Republican smoke and mirrors to visualize the relationship between deficits and net saving with a graph of historical data. Figure 1 shows these amounts as fractions of net national product (NNP, a measure of what was actually earned by Americans at home and abroad) over the past seventy-five years, with the green line representing net saving and the green line representing federal surpluses and deficits.