Senator Fischer is up for re-election in 2018 and she starts out a recent fund raising letter (see below) as follows: “My goals are clear: stronger national defense, safer roads and bridges, healthcare that is accessible and affordable, protection of our fundamental liberties, less government, and a fairer, simpler tax code.” Here’s the breakdown:
First, and most important: national security.
Second, our roads and bridges must be repaired and rebuilt.
Third, Obamacare must be repealed and replaced.
Fourth, our fundamental liberties must be protected.
Fifth, government must shrink and the tax code must be simpler and fairer.
I don’t disagree with the specifics of any of these five goals but rather where the emphasis is placed. Her first two goals are to greatly increase spending for both the military and for infrastructure projects. Her last goal is to shrink the federal government which is a good idea but very hard to accomplish in practice.
Here is the basic problem our national debt (the public part on which we pay interest) is now at 77% of GDP, the highest it has been since right after WWII, and steadily getting worse. Right now this approximately $14 trillion debt is essentially “free” money because interest rates are so low. But when interest rates inevitably rise to more normal levels, interest payments on the debt will soar by hundreds of billions of dollars per year and eat much more deeply into tax revenue.
It should be a very high priority for Congress to establish a plan to bring government spending more closely in line with tax revenue. I have previously described how this could be accomplished over a ten year period without cutting hardly anything but simply using restraint for spending increases.
Conclusion. If Senator Fisher feels that it is necessary to make big spending increases in areas such as national defense and infrastructure repair, then she should be equally adamant about the need to hold down the growth of government spending overall.
The Atlantic magazine has just released a remarkable essay written by the political commentator, David Frum, entitled, “How to Build an Autocracy.” Says Mr. Frum, “Donald Trump will not set out to build an authoritarian state. His immediate priority seems likely to be to use the presidency to enrich himself. But as he does so, he will need to protect himself from legal risk. Being Trump, he will also inevitably wish to inflict payback on his critics. Construction of an apparatus of impunity and revenge will begin haphazardly and opportunistically. But it will accelerate. It will have to.”
Let’s assume that Mr. Frum is correct that Trump’s top priority is to enrich himself. What will stop him from doing this? A recent column in the New York Times points out that:
54% of registered voters in congressional districts represented by Republicans view Mr. Trump favorably compared with only 42% who view him unfavorably.
In these same districts, 87% of registered Republicans view Mr. Trump favorably.
In other words, the Republican dominated Congress is unlikely to strongly oppose his sleazy and self-enriching behavior.
But there are other constraints on what he does in office:
As I said in a recent post in order for Mr. Trump to be reelected in 2020, he will need to substantially speed up economic growth in order to increase the wages of his key blue-collar supporters. He clearly wants to accomplish this.
On the other hand, the conservative Republican base, including its representatives in the House such as the Freedom Caucus, will simply not support huge increases in deficit spending for anything (except an emergency) including infrastructure, the military or unfunded tax cuts.
In fact, Rep Mick Mulvaney (R, SC), a deficit hawk, has been nominated to become the Trump Administration’s Budget Director. In March the debt ceiling will have to be raised. I expect the many fiscal conservatives in Congress to insist on significant fiscal restraint (e.g. a ten year plan to balance the budget) as a tradeoff for raising the debt ceiling.
Conclusion. Just because Republicans are tolerant of Mr. Trump’s personal behavior does not mean he can successfully ignore the strong Republican desire for fiscal restraint.
I am a non-ideological fiscal conservative. I don’t judge government as being either too large or too small. I just want to pay for however much government we do have without going into debt. Such an approach normally leads to political compromise whereby Congress tries to operate efficiently and hold costs down, only raising taxes as a last resort when it is impossible to squeeze any more low priority programs out of the system.
Such common sense used to be a fundamental operating principle, adhered to by both political parties. Unfortunately in recent years we have moved away from this model. In fact our public debt (on which we pay interest) has rapidly accumulated to $13 trillion, 74% of GDP, and will continue to grow much higher unless we strongly change our ways.
In some ways our current presidential campaign is following a conventional path. Both of the major Democratic candidates, Hillary Clinton and Bernie Sanders, want to expand federal programs and raise taxes to pay for the new spending. The Republican Tea Party candidate, Ted Cruz, is a constitutional and social conservative and wants to cut back on government programs. The leading Republican establishment candidate, Marco Rubio, supports modest new programs, such as expanding the Earned Income Tax Credit, and also modest tax reform to stimulate the economy. The wild card in the presidential race is Donald Trump. He is a secular populist with unconventional and even contradictory policy views. He not only leads the Republican field in most polls, he is steadily pulling ahead. He is doing all this by attracting huge support from working class white voters who have fallen away from the Democratic Party. In other words, he is potentially expanding the Republican base and therefore should be taken very seriously. Question. Can a fiscal conservative (who just wants to balance the budget!) but who also wants to address the very serious social problems in American society, support a Donald Trump candidacy for president? I am struggling with this question. Stay tuned!
I have been writing a lot lately about the need for a Balanced Budget Amendment to the U.S. Constitution. Our public debt (on which we pay interest) is now over $13 trillion and amounts to 74% of GDP. And this percentage, the highest since the end of WWII, is projected by the Congressional Budget Office to keep growing indefinitely. Eventually this will lead to another financial crisis, likely much worse than the one we’re still getting over with. Here is a vivid example of why it’s so hard for Congress to stop spending more each year than is collected in tax revenue. Vice President Joe Biden wants to launch a cancer “moonshot”, in honor of his late son Beau who died from brain cancer in May 2015, by “increasing resources – both public and private – to fight cancer.” This is an apparently attractive but actually poor idea for the following reasons:
The annual budget for the National Institutes of Health, which fund medical research, has already been increased by $2 billion for the current 2016 budget year.
Major advances in immunotherapy are enabling oncologists to target the surface of cancerous cells instead of using chemotherapy that affects the whole body. But these targeted therapies routinely cost over $100,000 a year per patient.
Everyone would like to speed up the war on cancer. But we’re already spending billions of dollars a year on it and cancer researchers are making steady advances. In other words, we should leave well enough alone on the cancer front and focus on a much more fundamental problem which is already severe.
I am referring, of course, to our excessively large and rapidly growing national debt. Right now interest rates are at historic lows and so our debt is almost “free money”. But this is already starting to change and soon interest payments on the debt will be eating us alive. We’re already in a deep hole but at least we can stop making it any deeper than it already is.
This is exactly what a Balanced Budget Amendment will accomplish.
For the past two weeks I have been I have been complaining about Congress’s irresponsible budget for 2016 and that we should now be pushing hard for a Balanced Budget Amendment to the Constitution. In my last post I make the case that a flexible BBA is compatible with economic growth and will, in fact, contribute to it once it goes into effect. Friday’s job report for December strengthens this argument:
In 2015 there was an increase of 2.65 million new jobs only slightly less than 2014’s 3.15 million new jobs, the two best years for job growth since 2000.
The current unemployment rate of 5.0% is the best since the end of 2006.
Although wage growth at 2.4% for 2015 is not as strong as the early 2000’s, wages have now been climbing 2% faster than price inflation for the past three years.
The offsetting negatives are a still slow GDP growth estimated at 2.2% for 2015 and a still very low labor participation rate of 62.6%.
Conclusion: At some point in the very near future the government needs to stop spending far in excess of tax revenue. The sooner we recognize this the easier it will be to make the necessary correction. Our economy is the strongest it has been since the end of the Great Recession in June of 2009. Getting government spending in better sync with tax collections will be a big challenge and will not happen overnight. In fact, if a BBA is required to get the job done it will take several years to implement this route to fiscal responsibility.
For all of these reasons now is the time to start moving on this gigantic and festering problem!
I have been writing this blog, “It Does Not Add Up” for three years now. It deals with fiscal and economic policy at the national level. Of the many problems in this area, there is one which looms larger than all the others. It is our out-of-control annual deficit spending which is in turn leading to a rapidly exploding national debt, now roughly $13 trillion or 74% of GDP. My last post considers the details of the recently passed 2016 Federal Budget and how it will add $158 billion to the deficit in just 2016 alone. The Committee for a Responsible Federal Budget estimates that the 10 year total in additional debt will be about $1.7 trillion.
As the above chart shows, such a huge additional debt in just ten years will lead to a total public debt in 2040 equal to 175% of GDP. Such an enormous debt is obviously unsustainable and will almost surely lead to a new, and much worse, financial crisis long before the year 2040 arrives.
As the chart also shows, we need to be moving in exactly the opposite situation to keep our debt under any semblance of control. Reducing deficit spending by $2 trillion over the next ten years would serve to “stabilize” the debt at 72% of GDP in 2025.
To actually end deficit spending, and therefore balance the budget, would require reducing the deficit by a total of $5 trillion over ten years. This is exactly what the Republican Budget Resolution from Spring 2015 proposed to do. Needless to say, this desirable goal has fallen by the wayside.
The Republicans are promising a fresh start and better process next year. We can only hope that they are more successful in the new year.
An article in the Friday, August 14 edition of the Omaha World Herald, “Why are the BRT stations so expensive? Officials explain the $260,000 price tag,“ describes a new $30 million bus rapid transit plan for Dodge Street with 27 individual sleek, modern bus stop shelters along the route at a cost of $260,000 each. Half of the new $30 million plan will be paid for by the city of Omaha and half by the Federal Transit Authority which has an annual budget of $8.6 billion. The issue is not whether Omaha should spend $15 million in local funds to achieve a $30 million bus system upgrade. We can expect city officials to make a responsible decision on this matter. The real issue is why the FTA should have annual budget of $8.6 billion to begin with when it is paying for, and therefore encouraging, extravagantly designed bus transit systems all over the country. The U.S. deficit for the 2015-2016 budget year, ending on September 30, is predicted to be about $450 billion dollars. This adds to the approximately $13 trillion public debt (on which we pay interest) which, at 74% of GDP, is the highest it has been since the end of WWII (see the above chart from the Congressional Budget Office).
It is the responsibility of Congress and the President to figure out how to get the budget under better control. All aspects of federal spending can and should be tightened up, including entitlements (Social Security, Medicare and Medicaid) and discretionary spending (everything else).
The Federal Transit Administration is wasting money on unnecessarily extravagant bus transit systems. Such fiscal irresponsibility means that its budget should be cut significantly. Many other similar examples exist in the federal government. We need people in Congress who can identify these fiscal boondoggles and effectively agitate for needed cutbacks.