Stop Bleeding Red Ink, Make America Sustainable Again

Debt and deficits are only a symptom of a deeper problem

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Trump
XINHUA/SIPA/Newscom

The Congressional Budget Office recently released its long-term budget outlook. There isn't much new there; we are still in the red, and it will only continue to get worse. Considering the extent of the problem, you would think someone on the campaign trail would pay attention. Yet no presidential candidate really is.

First, CBO projects that the federal public debt-to-GDP ratio will go from its current 75 percent (up from 39 percent in 2008) to 86 percent in 2026 and 141 percent in 2046. On the deficit side, CBO projects that by 2020, our deficit level will reach $1 trillion, up from its current level of $534 billion. Today's deficit-to-GDP ratio is 2.9 percent, and it may be close to 5 percent in 10 years and 8.8 percent in 2046.

There are a lot of assumptions going into these projections. As we know, a small change in these assumptions can have a significant impact. For instance, the newest projections show a slight improvement over previous projections because of lower-than-expected interest rates. However, CBO warns, a 1 percent increase in interest rates would propel the debt-to-GDP level to 188 percent. Gross debt would be much higher.

In addition, we know that many of these assumptions (e.g., that there will not be a depression in the next 30 years and that the unemployment rate will stay consistently at 5 percent over the next 30 years) are unlikely to materialize, which would make the final numbers look way worse than they do now.

But even without assuming the worst, CBO talks about our dire fiscal outlook, "with debt growing larger in relation to the economy than ever recorded in U.S. history." Indeed, down the road, debt is projected to reach much higher levels than in the aftermath of World War II, when it stood at 106 percent of gross domestic product. But these levels of debt today are more worrisome than in the 1940s. For one thing, the debt levels in the '40s were the product of significant increases in war spending, which naturally went down after the war. In addition, the postwar era experienced a fast-growing economy, which also helped lead to major reductions in debt levels.

That is not going to happen today. CBO projects meek economic growth all the way to 2046, along with large increases in spending levels. That means that unless we get a major breakthrough in technology or a life-altering discovery (which could happen, of course), I wouldn't count on post-WWII reduction in deficits and debt and growth levels.

But debt and deficits are only a symptom of a deeper problem; spending is growing faster than revenue. While revenue will grow from 18.2 percent of GDP today to 19.4 percent by 2046 (when the 50-year average will be 17.4 percent), spending will explode from 21.1 percent of GDP today to 28.2 percent of GDP in 2046 (when the 50-year average will 20.2 percent).

The drivers of our future debt, CBO reminds us, are still the so-called entitlement programs—government-provided health care spending, in particular. It doesn't mean that Social Security is not a problem, because it is—as is the large growth in interest payments on our debt. But you wouldn't know that by listening to the vague policy options on the campaign trail or in Washington, where talks of expanding Social Security, adding a public option to the Affordable Care Act, and not touching Medicare are very popular.

Each day of the Republican National Convention had a different theme. Monday's theme was "Make America Safe Again." Another was "Make America First Again." Maybe someone should suggest that we "Make America Sustainable Again."

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  1. Budgets?

    What in the every-loving FUCK does this have to do with transsexuals or gays or muslims or mexicans or rape? Judging by the revealed preference of the voters, those are what matters, not this stupid shit about fictional digital balances.

    1. We’re rapidly closing in on an incredible nine trillion dollars of total debt accumulated during Obama’s reign of terror, a fact which would have absolutely appalled the old Reason, but a fact which the new fake libertarian Reason has chosen to mostly ignore and handwave away.

      1. Not a Trumpkin but of all the reasons to oppose him, lack of govt experience has to be the most laughable. All those experienced minds in DC with their TopMan-y ways and deep intellect, who could possibly challenge their all-knowingness.

        1. Furthermore, it should never, ever be forgotten that the one or two times that the republicans actually threatened to have a real showdown with him over the budget, some of the absolute worst of the professional fakers here (like Pete Suderman especially) shit their panties and cried that they should just immediately surrender and give Obama everything he demanded.

      2. Both parties are complicit in running up the debt and setting the nation up for a huge fall. People need to wake up, but how is tricky question. This is not something that stares us in the face, so we tend to ignore it until too late. Perhaps it would actually be better to just prepare for the inevitable.

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  2. Today’s deficit-to-GDP ratio is 2.9 percent,

    Since that deficit is counted as an addition to GDP, I’m pretty sure our GDP ex-deficit has been negative since 2008.

    And Our Masters wonder why the Little People are in a bad mood.

    1. That isn’t quite right. If the deficit stays a constant 3%, then it doesn’t contribute to the annual growth.

      now, if it jumped to 6%, then it would account for a nominal 3%.

      1. Honest question: How do you figure? My thinking is pretty simplistic on this:

        Government spending is counted as part of the GDP. Debt-funded government spending no more belongs in GDP than the money you borrowed on your credit card belongs in your income.

        If I produce $100K a year in revenue for myself, but I borrow another $10K, is my Gross Personal Product $100K, or $110K? I think its $100K, but according to how we calculate GDP, it would be $110K.

        Does it matter what level of government borrowing “contributes to annual growth” when counting GDP?

        1. Mathematically, [d(GDP-Deficit)/dt] is a quantity with economic significance; [d(GDP)/dt – Deficit] is not .

          I think you’re on the right track by noting that the deficit shouldn’t count as GDP, but it should be subtracted from the GDP before taking its rate of change, not after.

          1. Ah, got it. You need to back it out of both last year and this year to see what the rate of change YoY is.

            Dang. I was rather proud of that talking point, but its wrong. That’s what you get when you let lawyers do math.

            1. No one let you do math.

              We know better, but lawyers ignore out advice anyway.

              Of course, we engineers try to discuss the law, so there ya go.

              However, at least in theory, the law is written for everyman to understand.

          2. Hate to pick nits, but I think you need to use debt and not deficit for your equation to work.

  3. Mme. de Rugy, your article is a breath of fresh air in a stale, sweaty, Trump-filled locker room.

    Each day of the Republican National Convention had a different theme. Monday’s theme was “Make America Safe Again.” Another was “Make America First Again.” Maybe someone should suggest that we “Make America Sustainable Again.”

    MASA? Isn’t that racist?

    1. Nope. Makes great tortillas.

  4. Call me atavistic, a barbarian relic, etc., but this does remind me why I’m glad I’ve got a decent stash of gold and silver in a safe place. Deep insurance. How I plan to provide for my family if we ever sink to Venezuelan levels of economic putrescence. And with these kinds of numbers and our ruling class, absent a sharp change of direction that I don’t see, its a matter of when, not whether.

    1. In Zombietopia, how does one convert a Krugerrand into something useful?

      Serious question.

  5. The drivers of our future debt, CBO reminds us, are still the so-called entitlement programs?government-provided health care spending, in particular. It doesn’t mean that Social Security is not a problem, because it is?as is the large growth in interest payments on our debt. But you wouldn’t know that by listening to the vague policy options on the campaign trail or in Washington, where talks of expanding Social Security, adding a public option to the Affordable Care Act, and not touching Medicare are very popular.

    THIS TRAIN HAS NO BRAKES

  6. If I were advising Trump and Johnson, I’d have a bunch of figures compiled about how much we spend and owe. Then, every time Hillary says “help the poor” or whatever, they’d have a figure ready: “Over the last XX years, every taxpayer has spent XX on fighting poverty. It doesn’t seem to have worked. It’s time for a new approach.”

    1. And half the room guffaws because they don’t actually pay taxes.

      1. (I take back the snark, actually, getting “merely” half the vote would put a candidate leagues ahead against either frontrunner this cycle.)

        1. That was just an example. These could also be phrased as “every person,” “every new-born baby owes,” etc. Or just in terms of time: “The federal government already spends $X very hour on Z. Are we getting our money’s worth?” The point is to use vivid, memorable figures that take the debt and deficit out of the realm of abstraction.

      2. Or understand the implications of what he said.

        1. There’s that, too. Taxpayers have ONLY spent xx? Better bump it up to xxxx. They can afford it, they’re paying taxes after all.

    2. I agree with you, but Trump has already made it clear that, aside from Obamacare, he has no interest in cutting entitlements. It’d be nice if the GOP ever nominated someone serious about the issue.

      1. And since he’d defer to the GOP re: ACA, assuming anyone is still pushing for repeal when and if he takes office, we’ll end up with ACA lite with tax credits. Hooray?

      2. Exhibit A: Paul Ryan in 2012., who proposed a halfway measure that probably wouldn’t work, but was at least a step in the right direction and the only high profile politician at the time to not just stick his head in the sand.

        Cue Team Blue commercials literally showing him pushing old grannies in wheel chairs off a cliff.

        1. I’d counter with commercials showing Hillary presenting six-figure bills to some new-born baby, or something like that.

          1. I agree that’d be a great commercial.

            But again, it just is not going to, and can’t, come from the current GOP nominee. How can he attack her on that when even a conservative tax group accounting for dynamic effects has his tax plan adding more than $1 trillion per year to the current deficit, and when he’s offered no spending plan to come close to offsetting that, let alone the current hole? It would fall flat, and for good reason.

        2. And you notice how Ryan has since shut up about that entitlement reform stuff since then. Lesson learned, I guess.

      3. SS and Medicare are untouchable. Even the ardently conservative elderly folks will bring out the torches and pitchforks if the words “cut” and “entitlements” are uttered in the same sentence. They’ve tried saying “reform”, they’ve emphasized “We only mean for those currently under age 55”. It doesn’t matter…

        1. My SocSec/Medicare reform would be this:

          (1) All entitlement programs are funded out of current collections through a separate, segregated “General Welfare” account funded entirely by a payroll tax.

          (2) No money may be diverted from that account to general revenue, and no general revenue may be used to fund that account.

          (3) The payroll tax rate is set every year. If it needs to go up to fund General Welfare, it goes up. If it is set too high, it goes down. There is no “employer” share of the payroll tax.

          (4) The General Welfare account should break even every year. It may not issue debt or carry a surplus. Any surplus must be spent the following year, and the payroll tax rate reduced to ensure that it is spent.

          Every year, we would have a “national conversation” about how much General Welfare we can afford/how high the payroll tax should be.

          1. My first SS reform:

            Continue the 2 month per year increase in retirement age that was implemented for birth years 1938-1960 forever.

            pre-1937, retirement age is 65. It increased over those 12 years to 67. Continue the pattern. It would be up to 68 for 1966, 69 for 1972, 70 for 1978, 71 for 1984, 72 for 1990, 73 for 1996, 74 for 2002, 75 for 2008, 76 for 2014 and so on.

          2. My SocSec/Medicare reform would be this: blah blah blah

            Good ideas. That’s exactly why they don’t do that. No politician wants to be seen as the mean person taking the candy away from the baby. It’s always: More, more more!

            “Every election is a sort of advance auction sale of stolen goods.” – H. L. Mencken

      4. I think his name was George. You didn’t like him very much.

      5. Nonsense. Because that candidate would cut all the entitlements at once. Therefore he’s Welsh, not Scots.

  7. “Maybe someone should suggest that we “Make America Sustainable Again.””

    Only works if it’s one syllable.

    I doubt making much of an emphasis on spending will do much good for Trump or Johnson. Hillary will frame it as being anti-poor and uncaring, they won’t be able to “outcare” her.

    1. In two weeks we’ll see:

      Make America Inflate Again

      Make America Hate Again

      Make America Bow Again (or Blow Again)

      Make America Pay Again

  8. However, CBO warns, a 1 percent increase in interest rates would propel the debt-to-GDP level to 188 percent. Gross debt would be much higher.

    25 basis points every 7 years. Let me see. Carry the ten… According to my calculations the 1% increase should hit about the same time as the bond/dollar bubble bursts. Hint, it’s not in 28 years.

    1. I’d read that a 1% increase in the GDP growth per year would take care of a lot of this. Of course, politicians do everything they can to retard grown and job creation.

  9. What is the GAAP deficit-to-GDP level?

  10. BTW Some people like Stossel (me too), but Veronique is by far my favorite. Another excellent piece.

    1. Its a toss up for me. De Rugy has a more highly specialized education than Stossel but Stossel is pretty good across the board.

      1. I just appreciate that there is at least one person here talking about grown-up topics.

        1. Yep. I think Lenore is another name to throw in this group.

    2. Apples and oranges. They serve different rhetorical purposes.

      De Rugy is able to further educate the already educated.

      Stossel introduces topics to the man in the street.

    3. Agree!

      Please, more economics topics!

      And if you want me to really plunk down some good cash, do more investigative journalism like Reason‘s “Love Canal” article where you dig up original contracts, meeting minutes, contemporary newspaper reports, etc.

      Eric Zuesse deserves a Pulitzer for that (if he didn’t win one for it).

      1. That was 35 years ago.

  11. Given that most of this is crap like unemployment payments, medicaid, medicare, social security, how much of it is really “Obama’s fault”?

    serious question.

    1. Obama certainly bears his share of culpability, but there is *plenty* of blame to go around.

    2. He made it worse with the medicaid expansion for the ACA, but realistically, this chestburster has been growing since the facehugger of the Great Society rammed its ovipositor down our collective throats over 50 years ago.

      By now, whenever it eats its way out of us, it’s no longer just going to be a drone, it’s going to be a full-on queen.

        1. If hunting down and killing faggots is wrong, then I don’t wanna be right.

        1. I really, really wish I hadn’t clicked on that.

      1. Viewed from a GDP perspective, federal spending was steady at about 19 percent GDP in the mid 2000s and then jumped, in the Great Recession to almost 25 percent GDP. But in the subsequent economic recovery federal spending has steadily declined as a percent of GDP down to about 20 percent in 2015.

        http://www.usgovernmentspendin…..ding_chart

        In prior years, I settled on 18% of GDP as the magic number. Anything higher than that has to be stolen by printing money.

        http://www.usgovernmentrevenue.com/recent_revenue

    3. When he came into office and had almost total democratic control of Congress, one of the very first things they did was to pass the crapulus and massively hike up the spending baseline.

      So while they don’t deserve all the blame, they deserve a pretty healthy share of it.

    4. He bears some blame for at best not doing jack shit about it. He chose to ignore the issue, or make it worse with the ACA. He even had a Republican controlled congress for 6 years. He could have “reached across the aisle” and been all presidential and “bi-partisany” and worked with people like Paul Ryan on entitlement reforms but chose not to. So fuck him.

      1. He didn’t just ignore it, he blasted his predecessor on the debt and on spending, even using the term “unpatriotic” at one point. Then, like with so many other things, his actions ran counter to his flowery rhetoric.

        1. AND, this fucker wouldn’t reach across the aisle if someone was handing him a joint.

      2. W tried to reform Social Security and got skewered for it.

        So, blame the voters.

  12. I’ve mentioned a couple of times in the past few days that Republicans control both houses of more state legislatures now than they have at any time since the 1920s. If the trend continues, we may see the Republicans approach the number necessary to initiate a convention to propose new amendments to the Constitution.

    I’m aware of the downsides of balanced budget amendments, but I’m not sure there’s any other hope to cut spending–on our own terms and of our own volition.

    There will never be a time when the government is so flush with cash that Congress will decide to cut spending. Keynesians even rely on the government to spend every penny it gets. Meanwhile, it seems increasingly unlikely to me that Congress will ever decide to cut spending in the face of a recession either–the logic for doing that seems to become harder and harder to sell with every recession.

    That leaves only a couple of possibilities.

    Scenario one is that inflation and interest rates become such that financing our government debt crowds out other spending. That’s nowhere in sight at the moment, but it will happen eventually if we don’t cut our spending. It’s such a painful and ugly thing when that happens though (see Greece), avoiding that scenario is an excellent reason to cut spending.

    Scenario two is a balanced budget amendment.

    Oh Millennials, can’t you see the old racist, homophobic fogies are spending your future paychecks today?

    1. God, our own Brexit-esque national convention would be a beautiful sight. If only we had more principled conservatives who weren’t getting pissed on for refusing to bend the knee to that fuckwit Trump. Imagine excising the necessary and proper clause and rectifying the commerce clause, at a minimum. The left would have a collective aneurysm.

      1. The Republicans control both houses of the state legislature in 30 states.

        Calling a convention to propose amendments requires 34 states. If the purpose of the convention were for something like a balanced budget amendment, we’d probably see some split legislatures support it.

        It would require some leadership to coordinate something like that, but that leadership wouldn’t necessarily have to come from the President.

        I think they might have to sell the call for a convention as a specific list of demands–hopefully free of wedge issues. God damn the Republican Party if they blew an opportunity to permanently balance the budget by going after gay marriage or abortion.

        1. “God damn the Republican Party if they blew an opportunity to permanently balance the budget by going after gay marriage or abortion.”

          +1

        2. God damn the Republican Party when

          FTFY

          1. No shit. That’s exactly what would happen. They’re not called the Stupid Party for nothing.

        3. God damn the Republican Party if they blew an opportunity to permanently balance the budget by going after gay marriage or abortion.

          Yes – unfortunately we have had a pretty good preview of what sells and what doesn’t this election cycle; I’d bet my car that debating the interstate commerce clause is the latter.

        4. Sorry, but countries get the leadership they deserve.

          GOP politicians go after gay marriage and abortion because they know those issues will get them votes. A movement for fiscal rectitude, when a large part of the population pays little or no taxes? Not so much.

    2. Ken, if Republicans are a status quo crony capitalist party, I dunno why (a) they would call a convention or (b) it would produce anything like a move in a libertarian direction.

      1. We’re talking about the Republicans in the states first.

        If the states initiate a convention specifically calling for a balanced budget amendment, it’s not the crony capitalists in Washington deciding whether there’s going to be a convention. Once there’s a convention, let’s give the folks in Washington the tea party treatment on whether they vote for the amendment.

        How many Republicans in Washington lost in their state primaries because of their support for TARP?

        P.S. I’m not saying this is likely to happen or will happen; I’m saying this is our best chance for taming the budget–of our volition.

        1. The folks in DC would never get a vote. The states would choose delegates to the convention, and the states would approve or not what comes out of the convention. DC would be totally bipassed.

          1. You’re right.

            “A Convention to propose amendments to the United States Constitution, also called an Article V Convention, or Amendments Convention, called for by two-thirds (presently 34) of the state legislatures, is one of two processes authorized by Article Five of the United States Constitution whereby the Constitution, the nation’s frame of government, may be altered . . . .

            To become part of the Constitution, an amendment must be ratified by either?as determined by Congress?the legislatures of three-fourths (presently 38) of the states or State ratifying conventions in three-fourths of the states.”

            http://tinyurl.com/n9qxmp8

            Congress just determines whether ratification is by legislature or state conventions.

            We could circumvent Washington entirely.

  13. Americans are all about reducing the debt until one of their hobby horses is put on the chopping block. Politicians are amazing at getting as many dependents as possible sucking on the teat of the government so they can continue to spend as much as they like. That way when someone suggests that the government start to make cuts, the people get angry and make it politically unpalatable to reduce the debt.

    1. That’s why a weapon system is built in 34 districts.

      1. There’s even a name for this: “political engineering”.

  14. Sustainable. I have come to hate this word.

    My favorite abuse of it are the lefties that have finally figured out that an enterprise cannot function without making some kind of profit, but they cant bring themselves to use the word ‘profit’.

    “Are you trying to make a profit?”

    “No, we are trying to make the business sustainable.”

    “Fuck you.”

    *Old news but too good not to repeat;

    “I know Bernie’s numbers don’t work but the things we want to do are just too important for us to be held back by mere numbers.” – Bernie Sanders supporter

    1. Not as contradictory a statement if you interpret it as denying Constitutional restraints, not electoral reality. I’m certain the idiots would be happy to attempt a putsch if they had enough vertebrae between them to form a spine.

      1. I am sure many of them have privately compiled their own ‘purge lists’ to jack off to.

    2. I know a lot of Bernie supporters and it requires a staggering amount of ignorance of basic economics among with this unearned mentality of entitlement to support him. So when they say that numbers shouldn’t be an inhibitor towards their goal of utopia, the comment shouldn’t shock you at all.

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  16. It’s not possible to count on the politicians for this. What’s necessary is to drive home to voters the seriousness of the debt and how it will affect the future. I’d think younger people (under 30) would be much more concerned about this. However, they are also the most ignorant when it comes to this kind of thing, though most people *over* 30 don’t display much acumen about this either.

  17. The ratio of deficit to GDP is a dimensionless number, but the ratio of debt to GDP is a time. Why not say, “? the federal public debt-to-GDP ratio will go from its current 274 days (up from 142 days in 2008) to 314 days in 2026 and 515 days in 2046”?

    1. ANd the whole “debt to GDP” idea is flawed anyway. The government doesn’t own 100% of the GDP. The metric should be “debt to annual government tax receipts”.

      1. That would certainly make for a much more impressive (and not in a good way) number.

  18. If Republican voters cared about the budget deficit, Rand Paul would be accepting the nomination tonight in Cleveland.

    1. And there you have it. The country is not going to be “lead” to fiscal sanity by its political “leaders.” If the people, i.e. voters, don’t demand solvency, there is no way they’re going to get it.

      1. Nothing will get done until there is no other choice, including kicking the can down the road.

  19. Repeal the 16th-A, and institute a tax on consumption under the Excise Clause (Art-I/Sec-8a); Institute Base-line Budgeting (repealing the Budget Act of 1974); Require that all Acts/Laws have a Sunset Date requiring Congress to properly review their work for efficacy prior to reinstatement.

    1. Do you have a more convenient name for me to write you in in november?

    2. Members of Congress don’t review laws their aides write now. Remember ” We have to pass the bill to find out what’s in it “? Why would they ever review any law down the road? You expect them to stop lining their pockets long enough to learn to read?

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