Post from First Trust Economics Blog

Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist 

March 17th, 2025

Every so often we hear a theory that makes sense

superficially but on closer examination doesn’t add up.

The most recent one is that the Trump Administration

wants a recession (or at least wouldn’t mind one) because

interest rates would drop, making it easier to service the

national debt.

We will come back to this theory in a moment, but

it seems like this is either misguided thinking, or an

attempt to place political blame for long-term problems.

Everyone knows that there has to be a price paid for

lousy management. If you treat your body poorly, say

with gluttony or sloth, it may seem fun for a while, but

you eventually pay a price. And rehab is never fun.

Companies that manage themselves poorly are often

taken over by better managers who make drastic

changes. Not fun either. And the government, when it

gets out of control, needs to be reined in, too, which can

upset the lives of those who let it get that way in the first

place.

No one blames the rehab physician or nutritionist

for recommending a path back to health, even if they take

away the fun. But for some reason those who come in to

fix broken corporations get nicknames like “Chainsaw

Al” or “Rambo in Pinstripes.” Now, Elon Musk may

brandish a chainsaw (as a gift from Javier Milei) but

doesn’t wear pinstripes, so he gets called other names.

What we are saying is that any budget restraint now

being implemented might cause some short-term pain –

maybe even a recession – but that doesn’t mean a

recession is by design to make the debt easier to service.

To the contrary, a recession would make our fiscal

situation worse, not better. Yes, a recession would likely

lead to lower interest rates. But because the average

maturity of government debt is roughly five years,

interest payments would only fall gradually.

In the meantime, tax revenue would drop and

spending on unemployment insurance and other

programs for the jobless and low-income workers would

go up faster. And all of this would be included in any

CBO scoring of the budget. Plus, there’d be increased

pressure on Congress to pass temporary measures to

fight the recession by expanding the deficit even more,

like during COVID.

Even though net interest on the debt has soared, it’s

still only about 13% of federal spending. So even if a

recession could temporarily reduce interest, making that

13% easier to service, it would dry up revenue used to

finance the other 87% of spending.

To be clear, we think the Administration is aware

that its efforts to cut the government could cause short-

term economic pain and they’re not letting that fear deter

them. But that doesn’t mean they’re trying to cause a

recession; they’d certainly prefer that the economy keeps

growing amid all the spending cuts, because economic

growth will help limit debt in the long run.