The Congressional Budget Office (CBO) just released its new 10-year forecast. Unsurprisingly, it shows that Trump’s reckless spending policy is accelerating America’s descent to Greek-style fiscal profligacy.
Most people are focusing on the estimates of additional red ink, but I point out in this interview that the real problem is spending.
Some folks also are highlighting the fact that CBO isn’t projecting a recession, but I don’t think that’s important for the simple fact that all economists are bad at making short-run economic predictions.
That being said, I think CBO’s long-run fiscal forecasts are worthy of close attention (unfortunately, I didn’t state this very clearly in the interview).
And what worries me is that the numbers show that government spending will be consuming an ever-larger share of the nation’s economic output.
However, it’s not time to give up.
Modest spending restraint (i.e., obeying the Golden Rule of fiscal policy) generates very good results in a remarkably short period of time.
What matters most is reducing the burden of spending. But when you address the problem of government spending (as the chart shows), you also solve the symptom of red ink.
The challenge, of course, is convincing politicians that spending should be frozen. Or, at the very least, that it should only grow at a modest pace.
We have enjoyed periods of spending restraint, including a five-year spending freeze under Obama, as well as some fiscal discipline under both Reagan and Clinton.
But if we want long-run spending discipline, we need a comprehensive spending cap, sort of like the very successful systems in Hong Kong and Switzerland.
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