Last week, while the two major parties were fighting over the last morsels of capitalism left in the rush to full-throated socialism, the CBO released its annual long-term budget outlook, which demonstrates the effects of the socialist policies emanating from both parties. There is nothing but eye-popping debt, dependency, lower income, and permanently depressed economic growth. And nothing being promulgated by the two major parties addresses any of this; instead, their proposals exacerbate all the economic and fiscal problems.
Yes, I know the CBO often gets it wrong. But in which direction? It tends to underestimate spending and overestimate revenues. Thus, the destruction projected by the CBO is the floor, not the ceiling, of the calamity we are facing.
We have not experienced a year of 5 percent growth since Reagan.
You think $19.8 trillion in debt is bad? Although we are already near to World War II levels of debt relative to the size of the economy, we’ve seen nothing yet.
Key takeaways from the CBO’s report:
- Debt relative to the economy: At present, annual deficits represent 2.9 percent of the economy, but are slated to mushroom to to 9.8 percent by 2047. The public debt will grow from 77 percent of the economy to 150 percent in 30 years, mainly because of Social Security, health care spending, and interest on the debt. Factoring in other alternative assumptions, which often prove to be correct, the public share of the debt alone could rise to as high as 244 percent of the economy. But remember, that is only the public debt and doesn’t include the intra-governmental debt, known as “gross debt.” Intra-governmental debt includes obligations that must be met and will require new public debt or tax increases in order to meet them. Gross debt already stands at 104 percent of GDP and in 30 years will be over 175 percent, according to some estimates. That is where Greece is now. Also, this analysis predicts that revenues will rise from 17.8 percent of GDP to 20 percent. Everyone remembers that the CBO has always been overly bullish on revenue projections.
- Interest on debt is the fastest-growing expenditure: One of the reasons the debt has not already engulfed this country in a fiscal catastrophe is because of the artificially low interest rates servicing increased debt on the cheap. But a return to normal interest rates, in conjunction with the growing size of the debt itself, will self-perpetuate interest on the debt as the fastest-growing expenditure. According to CBO, interest on the debt is slated to rise from 7 percent of federal spending to 21 percent by 2047. Put another way, it will quadruple in terms of its share of the economy, from 1.4 percent of GDP in 2017 to 6.2 percent by 2047. This means that just the interest payments alone will be larger than the entire discretionary budget — Department of Education, EPA, Homeland Security, you name it! More than half of the increase in spending over the next 30 years is projected to come from interest payments alone.
- Indefinite economic stagnation: The debt is not just an accounting figure we can leave for the next generation. The misallocation of resources is already weighing down our economy. As I’ve noted before, it’s no coincidence that we have not experienced a year of 3 percent growth in 12 years or a year of 5 percent growth since Reagan. The accumulation of debt, dependency, and lack of a free market have permanently destroyed our economy, so that even when there is no recession, we have no periods of prosperity. According to the CBO, this trend will continue and worsen, due to the rising interest payments and debt. The CBO projects an average annual growth rate of 1.9 percent over the next 30 years. And its projections are usually overly optimistic.
To see how the debt crisis is destroying the economy now, look at this summation from the CBO:
Large federal budget deficits over the long term would reduce investment, resulting in lower national income and higher interest rates than would be the case otherwise. If the government borrowed more, more of people’s savings would be used to buy Treasury securities, and thus private investment would be crowded out …
With less investment in capital goods — factories and computers,
for example — workers would be less productive. Because productivity growth is the main driver of growth in people’s compensation, decreased investment also would reduce average compensation per hour, offering people less incentive to work.
That neither President Trump nor either party ever factor in the crushing debt to their “economic growth plans” defies logic. Much as with immigration policy, our economic policies are following in the footsteps of Europe.
What this means for today’s political debate
Health care is the 800-pound gorilla in the room. Federal spending on health care (not including state expenditures) is projected to be $16.5 trillion over the next 10 years, dwarfing the cost of Social Security and the military. By 2047, health care spending will be about 25 percent greater than the insolvent and crushing cost of Social Security. As such, health care in itself is the largest driver of the other great crisis, as noted: the mushrooming cost of the interest on the debt itself. Health care spending will be greater than all the revenue from payroll taxes and corporate income taxes combined and almost as large as individual income tax revenue.
To make matters worse, remember that the CBO is grossly underestimating the cost of Obamacare because of its flawed methodology in predicting the rise of premiums. Premiums in Alaska already cost as much as $50,000. There’s nothing stopping premiums from rising to $1 million, and the government would foot almost the entire bill for those earning under $80,000, while everyone else would have to pay the full price! No amount of budget scoring could ever capture what the budget and economy will look like when every state experiences what Alaska is confronted with today. We will have single-payer in short order.
Therefore, we cannot move away from full repeal of Obamacare. We cannot ignore our right to free market health care. If the federal and state governments would pursue our free market ideas (many of them promised by the GOP), health care would work like a regular market and prices on delivery and insurance would come down. That would keep more people in the private sector and away from government programs, further reducing costs and alleviating pressure on the budget. There is no other choice and no other way to grow the economy, raise wages, and stem the tide of debilitating debt.
Sadly, non-government-run health care is not an option on the menu between the two branches of one big political party.