Eakinomics: Groundhog Day

Eakinomics: Groundhog Day Yesterday the Congressional Budget Office (CBO) released its Budget and Economic Outlook for the fiscal years 2020-2030. AAF’s Gordon Gray covers all the details, but let me give you the short version. If you read CBO’s August 2019 An Update to the Budget and Economic Outlook: 2019-2029 (as I am sure you did) or its January 2019 The Budget and Economic Outlook: 2019-2029 (which doubtless lies dog-eared on your coffee table), then you’ve got a pretty good grip on this year’s version. Sure, interest costs got revised down by $530 billion (over 10 years) and the December budgetary blowout raised deficits by $505 billion. But let’s face it, the difference from August is about as big as the difference between bottled waters. That’s the bad news. As I noted in my testimony before the Senate yesterday, there are a gazillion numbers to illustrate the budget outlook, but they all tell the same story: The fiscal trajectory is unsustainable, with projected spending rising ever-above projected revenues and debt (relative to gross domestic product) spiraling northward. Doing nothing is not an option, and a course correction sooner would be easier than later. It should involve a relentless, focused effort a fostering as rapid economic growth as possible and will more than likely mean raising revenue (which should be done as efficiently as possible; i.e. steer clear of wealth taxes and other forms of economic self-immolation). But it will also inevitably require reforms of the entitlement spending programs, especially Social Security and Medicare. Promising to leave these untouched — or worse, promising to expand them — is as big a favor as a free ticket for the Titanic. The low-interest-rate environment (which precipitated the reduction noted above) has been accompanied by silly arguments that low interest rates makes budget reforms unnecessary or at least less urgent. Wrong and, again, dangerous. (See the testimony for more details.) Finally, the absence of a crisis does not mean that the United States does not have a problem. The yawning budget deficits will slowly diminish the accumulation of productive resources, lead to debts to foreign lenders, and ultimately diminish the standard of living. Enjoy reading.