The Congressional Budget Office has just released its new 10-year fiscal forecast and the numbers are getting worse.
Most people are focusing on the fact that the deficit is rising rather than falling and that annual government borrowing will again climb above $1 trillion by 2022.
This isn’t good news, of course, but it’s a mistake to focus on the symptom of red ink rather than the underlying disease of excessive spending.
So here’s the really bad news in the report.
- The burden of government spending has jumped from 20.3 percent of GDP in 2014 to 21.2 percent this year.
- By the end of the 10-year forecast, the federal government will consume 23.1 percent of the economy’s output.
In other words, the progress that was achieved between 2010 and 2014 is evaporating and America is on the path to becoming a Greek-style welfare state.
There are two obvious reasons for this dismal trend.
- Notwithstanding laughable claims from the White House, Obamacare is contributing to rising spending on healthcare entitlements.
- Republicans keep capitulating on the BCA spending caps, enabling more wasteful outlays for so-called discretionary programs.
Here’s a chart that shows what’s been happening. It shows the rolling average of annual changes in revenue and spending. With responsible fiscal policy, the red line (spending) will be close to 0% and have no upward trend.
Unfortunately, federal outlays have been moving in the wrong direction since 2014 and government spending is now growing twice as fast as inflation.
By the way, don’t forget that we’re at the very start of the looming tsunami of retiring baby boomers, so this should be the time when spending restraint is relatively easy.
Yet if you’ll allow me to mix metaphors, bipartisan profligacy is digging a deeper hole as we get closer to an entitlement cliff.
Now let’s shift to the good news. It’s actually relatively simple to solve the problem.
Here’s a chart that shows projected revenues (blue line) and various measures of how quickly the budget can be balanced with a modest bit of spending restraint.
Regular readers know I don’t fixate on fiscal balance. I’m far more concerned with reducing the burden of government spending relative to the private sector.
That being said, when you impose some restraint on the spending side of the fiscal ledger, you automatically solve the symptom of deficits.
With a spending freeze, the budget is balanced in 2020. If spending is allowed to climb 1 percent annually, the deficit disappears in 2022. And if outlays climb 2 percent annually (about the rate of inflation), the budget is balanced in 2024. And if you want to give the politicians a 10-year window, you get to balance by 2026 if spending is “only” allowed to grow 2.5 percent per year.
In other words, the solution is a spending cap.
Here’s my video on spending restraint and fiscal balance from 2010. The numbers obviously have changed, but the message is still the same because good policy never goes out of style.
Needless to say, a simple solution isn’t the same as an easy solution. The various interest groups in Washington will team up with bureaucrats, politicians, and lobbyists to resist spending restraint.
P.S. A final snow update. Since my neighbors were kind enough to help me finish my driveway yesterday, I was inspired to “pay it forward” by helping to clear an older couple’s driveway this morning (not that I was much help since another neighbor brought a tractor with a plow).
It’s amazing that these good things happen without some government authority directing things!
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Try explaining this to people who are economically illiterate.
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We are half way between the old 1980’s America and Europeanization. So, accordingly, our growth rate has fallen from a 3-3.5% trendline to 2%. Once we complete our European convergence journey, we will be at 1%. Permanently and irreversibly. Just like Europe.
At 3-3.5% we used to match the world average — and maintain our top prosperity ranking in the world. Now at 2% we are at about half the average world growth trendline, and thus losing worldwide prosperity ranking fast.
When HopNChange completes its European transformation we will be at 1%, one quarter world trendline, and losing prosperity ranking precipitously. Just like Europe, the slowest growing (ie fastest declining) continent on earth.
That is our dream. That is what we will vote for after listening to endless, meaningless, electoral debates. Do you see the voter-lemmings with the attentively fixated look at the electoral debates? Deer in headlights.
Those are the important numbers and social capital trendlines that tell all. Those are the numbers and voter-lemming trends we need to explain our children so they can see the America they’ll be living in if they fail to open up to mobility and end up stuck here.
1, As a current Federal Budget analyst, I can think of several ways we can cut spending within existing programs, not just cap it. The cuts would be modest but they can be done and it would demonstrate commitment and build trust. Start by reigning in the IT mafia. Computer geeks blow money out the door like water for no better reason than it is Tuesday and there is not a CIO in government capable of ordering lunch without herein at least 3 consultants.
2. It would still be better to actually eliminate entire programs. Operating 20 programs with 85% of the resources they need is more of a waste than operating 10 fully resourced programs. BTW, not all resources are financial, many programs suffer from lack of leadership because executives are trying to do too much and cannot focus. Allocate less money and more oversight, government programs might start to surprise you.
3. Size and cost is actually a poor measurement of the intrusiveness of government. The Social Security Administration is orders of magnitude larger than the EPA. Judge for yourself which is the more onerous. Possibly the most intrusive/abusive form of government ever known is the average Home Owners Association. They are not always expensive and they are hyper local but do you really need someone telling you what color to paint your door?