Spending more on debt than defense
One item the lame duck Congress is unliekly to have the time or the votes to effectively address is the federal government's growing pile of debt. We've written many times before that our political class has a limited time to fix the debt problem on its own terms (otherwise, markets will do it for them -- and us -- quicky and painfully).
How much time they had has always been an open question. This item in the Wall Street Journal indicates it might be much less than we ever expected as interest rates begin their slow return to historically normal levels:
In 2017, interest costs on federal debt of $263 billion accounted for 6.6% of all government spending and 1.4% of gross domestic product, well below averages of the previous 50 years. The Congressional Budget Office estimates interest spending will rise to $915 billion by 2028, or 13% of all outlays and 3.1% of gross domestic product.
Along that path, the government is expected to pass the following milestones: It will spend more on interest than it spends on Medicaid in 2020; more in 2023 than it spends on national defense; and more in 2025 than it spends on all nondefense discretionary programs combined, from funding for national parks to scientific research, to health care and education, to the court system and infrastructure, according to the CBO.
In other words, interest payments will become a very big issue in the next Congress. But we have been in similar circumstances before. How did Congress and the White House respond then?
The early 1990s were the last time the government’s interest expenses were high and rising. Back then, Washington politicians routinely worried about “bond market vigilantes” on Wall Street who threatened higher costs on debt if deficits weren’t contained.
To confront the problem, President George H.W. Bush did a budget deal with Democrats that raised taxes on the wealthy, alienating Republicans and undermining his chances for a second term in office. President Bill Clinton abandoned campaign promises of a big fiscal stimulus program.
There were more things afoot than just these two items, but a bit of real fiscal discipline did enter the political bloodstream in the 1990s. By the end of the decade, the federal government was running a minor surplus. It didn't last owing to a variety of issues, not the least of which was the political class deciding it wanted to go back to playing Santa Claus.
We can no longer afford such behavior. And we also now know the days when the debt becomes unsustanable will arrive just in time for the next presidential election.