The Congressional Budget Office just released a Monthly Budget Review showing a $782 billion deficit for the 2018 fiscal year.
My recommendation is to mostly ignore data on red ink. Yes, it is possible that a country can get in trouble because of deficits and debt, but it’s far more important to look at what’s happening with government spending.
This is for two reasons.
- First, spending is the most accurate way of measuring the fiscal burden of government. Regardless of whether it is financed by taxes or borrowing, spending is what requires resources to be diverted from the economy’s productive sector.
- Second, the best way of predicting red ink is to look at what’s happening to spending. If the burden of government spending is growing faster than the private sector, that’s a very worrisome trend. In the long run, it leads to fiscal crisis.
With this in mind, I dug into the CBO numbers to see what’s really happening.
Lo and behold, we find that the deficit was falling rapidly when there was a de facto spending freeze between 2009 and 2014. But ever since 2014, spending has been growing more than twice the rate of inflation and the deficit is climbing.
Does tax revenue also play a role? Of course.
I’ve already explained that the Trump plan has a front-loaded tax cut, so that has an effect on short-run deficits. But I also noted that the tax cut gradually disappears because the revenue-raising provisions from last year’s legislation become more important in the long run.
In other words, America’s long-run fiscal challenge is entirely the result of a rising burden of government spending. And that’s very clear in the Congressional Budget Office numbers.
The bottom line is that America has a spending problem, not a red ink problem. Deficits and debt are symptoms, but the underlying disease is that the federal government is too big and that spending is growing too fast.
The solution is to follow my Golden Rule with a spending cap.
P.S. To help them understand this point, Republicans need shock therapy.
P.P.S. Maybe it’s difficult to educate Republicans because they’re part of the problem?
[…] I have mixed feelings about the Committee for a Responsible Federal Budget (CRFB). They think controlling red ink should be the main focus of fiscal policy, whereas I think controlling […]
[…] I have mixed feelings about the Committee for a Responsible Federal Budget (CRFB). They think controlling red ink should be the main focus of fiscal policy, whereas I think controlling […]
[…] I have mixed feelings about the Committee for a Responsible Federal Budget (CRFB). They think controlling red ink should be the main focus of fiscal policy, whereas I think controlling […]
[…] I have mixed feelings about the Committee for a Responsible Federal Budget (CRFB). They think controlling red ink should be the main focus of fiscal policy, whereas I think controlling […]
[…] that I have mixed feelings about the Committee for a Responsible Federal Budget (CRFB). They think controlling red ink should be the main focus of fiscal policy, whereas I think controlling spending should be the top […]
[…] The folks at USA Today invited me to opine on fiscal policy, specifically whether the 2017 tax cut was a mistake because of rising levels of red ink. […]
With the coming of AI, expenses are expected to skyrocket for the safety-net which is about 65% of non-interest spending. With that spending come all the disincentives involved when the unemployed balance going back to work vs staying on unemployment. (the hockey stick)
The 21st century requires a different kind of support that does not disincentivize or doesn’t do so as much.
A UBI will grow only 0.9% with the growth of citizenry, and while there will still be a need for a lower level of unemployment benefits, it should not be enough (close to half) to keep people from looking for a job. The UBI will also increase with inflation, but GDP is also adjusted for inflation. 0.9% should be easy for the economy to beat (the Mitchell Rule).
Increases in current support levels for the zillions of programs are like whack-a-mole. You stop one and another increases. Better that you have one potentially federal budget busting increase to track and halt, while you let states do as they wish based on their liberal or conservative bias.
If the deficit was $782Billion ($0.782Trillion), how come we borrowed $1.17Trillion in FY 2018.
A difference of $0.39 Trillion or $390 Billion dollars.
And where, or on what was that $390 Billion spent on.
My suspicion is it went to SS and or Medicare, but no one ever talks about this off budget and unauthorized spending..
Hopefully Dan, one day you will enlighten us on this question….