America’s Fiscal Problem Is Spending, not Red Ink

The Congressional Budget Office released it’s 2020 Long-Term Budget Outlook yesterday.

Almost everybody has focused on CBO’s projections for record levels of red ink. And it is worrisome that debt is heading to Greek/Japanese levels (especially if the folks who buy government bonds think American politicians are more like Greek politicians rather than Japanese politicians).

But what should really have us worried, both in the short run and the long run, is that the burden of government spending is on an upward trajectory.

CBO has some charts showing that federal government spending will consume more than 30 percent of GDP by 2050, assuming the budget is left on autopilot.

But I dug into CBO’s database and created my own chart because I think it does a much better job of illustrating our problem.

As you can see, the problem is that government spending is projected to grow too fast, violating the Golden Rule of fiscal policy.

The solution to this problem is very simple.

We need spending restraint, ideally enforced by some sort of spending cap.

And if we control the growth of spending (preferably so that it grows no more than the rate of inflation), the projections for ever-rising levels of red ink will disappear.

In other words, you can get rid of symptoms (red ink) when you cure the underlying disease (big government).

P.S. Given all the profligacy over the past year, you won’t be surprised to learn that this year’s long-run forecast from CBO is more depressing than last year’s forecast.

P.P.S. While the solution is simple, it’s not easy. Restraining the growth of spending – especially in the long run – will require entitlement reforms, especially for Medicare and Medicaid.

P.P.P.S. Tax increases almost certainly would make a bad situation even worse by weakening the economy and encouraging more spending.