Because "America is Not Broke" Today, We Can Keep Spending Like There's No Tomorrow.
Yesterday, Matt Welch pointed to of the most recent statements by Wash Post fiscal denialists (E.J. Dionne and Ezra Klein), both of whom are taking a relaxed approach to continuing levels of spending predicated upon deficit spending by federal, state, and local governments.
Above is a chart from Heritage Foundation analyst Brian Riedl who, unlike many at that Bush-friendly-always-had-an-excuse-for-why-it-was-OK-when-a-Republican-ran-up-spending institution, generally never let political affiliations get in the way of basic math. What Riedl points out is not simply a small, persistent gap between revenues and outlays that we've come to expect from the feds. What he shows an Emeril Lagassian "Bam!" moment, where the problem gets kicked up a notch of three from a generally awful baseline. According to the president's own budget proposal, we're looking at "expanding the federal government by 3 percent of gross domestic product (GDP) over 2007 pre-recession levels."
That's bad enough, but it's really the revenue line that freaks my shit more. Obama is projecting an unsustainable level of revenue that still won't come close to matching outlays. Since 1950, total federal revenues have averaged 17.8 percent of GDP. There has been only one year when it exceeded 20 percent of GDP (and only two years when it reached 20 percent). Yet Obama says that's where we're headed. Here's the point: It ain't gonna happen and even if it does, it leaves us with a 3 percentage point spread between spending and revenue. This is where we enter the realm of true insanity, when folks making up totally fanciful estimations of future growth don't even have the courage of their delusions to balance their own fantasies! Truly, this is the end of American exceptionalism.
Here's another reason, by the way, to worry about how things may go haywire and in a big way: Interest rates are low and have been historically low for some time. When it comes to financing government debt, we're screwed if they stay where they are but we're massively screwed if they tick up to what private forecasters predict will happen or, saints preserve us, if they revert to something like what we saw in the 1990s and 1980s.
The above chart comes courtesy of Mercatus economist Veroniqe de Rugy, a Reason columnist, who writes:
If interest rates were modified to reflect the average rates in the 1980s, in 2021, our interest payments would nearly triple from CBO's projection of $749 billion to $2.0 trillion. Accumulated interest payments over this period would double from their current projected level of $5.7 trillion dollars to $11.0 trillion dollars. Needless to say, the impact of these increased interest costs on the deficit would be huge.
The only way to address the increasing costs of our debt is to address the driving forces behind it – legislated explosions in Social Security, Medicare, and Medicaid spending.
In the March 2011 issue of Reason, de Rugy and I suggested a way to balance the budget over the next decade, without cutting essential services or raising taxes. Read "The 19 Percent Solution."
Reason.tv recently asked the question, "Are We Broke Yet?":