The government's headlong plunge toward bankruptcy
The Congressional Budget Office has released new projections on federal spending and debt and, surprise surprise, the news is beyond horrible. Just how bad are things likely to get? Doug Bandow writes at National Review the red ink may swallow the economy whole:
According to the new CBO analysis, the deficit this year will exceed $800 billion, well above last year’s prediction. The deficit will be just shy of $1 trillion next year, continue to shoot upward to $1.3 trillion in 2027, and reach an astounding $1.5 trillion in 2028, higher than even during the financial crisis, which generated four years of trillion-plus-dollar deficits. Total red ink over the next decade will be around $12.4 trillion. As a percentage of GDP the deficit will run 4.9 percent. In 2027 the total national debt held by the public will be $27 trillion and 94.5 percent of GDP, the highest it’s been since 1946, when the U.S. was paying down its World War II debt.
The prime drivers of the near-term bad news: a Congressional spending spree, coupled with tax cuts. We like tax cuts as much as the next guy. But the government's insistence on increasing spending as it cut taxes was guaranteed to make the debt and deficit grow to monstrous size. But that isn't the only source of pain yet to come:
According to the CBO, the “increase reflects significant growth in mandatory spending — mainly because the aging of the population and rising health care costs per beneficiary are projected to increase spending for Social Security and Medicare, among other programs. It also reflects significant growth in interest costs, which are projected to grow more quickly than any other major component of the budget.” The agency figures that interest payments will rise three times in total and two times as a percentage of GDP by 2028. Revenues also will increase significantly, but not as fast as outlays.
So demographics play a role, too. But that's not all:
Unfortunately, big spending and massive deficits have negative economic impacts. More resources will be channeled into interest payments, reducing resources available for other uses, private and public. Moreover, explained CBO, “because federal borrowing reduces total saving in the economy over time, the nation’s capital stock would ultimately be smaller, and productivity and total wages would be lower.” That is, people would earn less while being forced to pay more.
The result is an economy that is less resilient, and less able to weather future economic downturns.
Once upon a time, fiscal conservatives organized themselves into small groups called "tea parties" to protest reckless federal spending and choking federal debt. They even managed to elect a few fiscally responsible members of Congress who promised to fight for smaller, more affordable government.
That seems like a lifetime ago. All we have now are elected spendthrifts determined to drive the economy to its knees.