The Congressional Budget Office has just released a new report, “Macroeconomic Effects of Alternative Budgetary Paths” concerning several decisions which Congress will have to make in the very near future, pertaining to the sequester budget cuts of $1.1 trillion over ten years, approving a budget for the remainder of the current 2013 fiscal year and raising the federal debt limit.
The first page of the CBO report conveys the basic message with a single graph. If the sequester is cancelled and there is perhaps even additional deficit spending in the near term, it will give the economy a small boost in 2014 but cause a drop in GDP of close to 1% by the year 2023.
If the deficit is decreased by an additional $2 trillion over 10 years, beyond the spending cuts required by the sequester, the economy will take a small hit in 2014 but will receive a boost of close to 1% by 2023. An additional deficit reduction of $2 trillion over 10 years, will cause a greater immediate hit to the economy but produce a much more substantial boost of almost 2% by 2023.
An excellent summary of the CBO report, including political implications, is given by the Wall Street Journal on February 6, 2013. For example, it is the last scenario above, an additional $4 trillion deficit reduction over ten years, which would put the US on a path to achieve a balance budget by 2023.
Under current law, with no additional deficit reduction in the future beyond the sequester which takes effect on March 1, the annual deficit will shrink for the next three years but then resume a steady climb back to $1 trillion by 2023 and the publicly held national debt will climb from its current level of 73% of GDP to 77% of GDP by 2023.
The choice now before Congress is thus very clear: should we continue kicking the fiscal can down the road, as the Keynesian economists want to do, or should we bite the bullet, take a small immediate hit to the economy, and thereby put the future of our country on a sound financial basis?
To me the answer is clear as clear can be. But it will require our national leaders to stand up and be counted. Do enough of them have the political courage to do what needs to be done?