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The U.S. Has A Dangerous Spending Problem (Not A Debt Ceiling Problem)

Social Security Debt Ceiling
President Joe Biden, joined by Vice President Kamala Harris, delivers remarks on the Victims of Crime Act Fix to Sustain the Crime Victims Fund on Thursday, July 22, 2021, in the East Room of the White House. (Official White House Photo by Adam Schultz)

If there’s one thing we know about the looming debt limit crunch and the warnings about the dire consequences of default, it’s this: The government is not going to default.

The recurring brinksmanship over the debt limit and the partisan refusal to get Republican fingerprints on the increase don’t say much for our political class. But the U.S. Treasury isn’t full of stupid people, and they’ve been through this drill before. Back in July 2011, when the debt ceiling of $14.3 trillion was about to be reached, the Washington Post reported:

The Treasury has already decided to save enough cash to cover $29 billion in interest to bondholders, a bill that comes due Aug. 15, according to people familiar with the matter.

You can bet they’re making similar plans today. The difference is that 10 years later the debt ceiling is $28.4 trillion, just about doubled, and we’re about to bump into it again.

Back in that summer of discontent, I talked to a journalist who was very concerned about the “dysfunction” in Washington. So am I. But I told her then what’s still true today: that the real problem is not the dysfunctional process that’s getting all the headlines, but the dysfunctional substance of governance. Congress and the president will work out the debt ceiling issue, probably just in the nick of time. The real dysfunction is a federal budget that doubled in 10 years, unprecedented deficits as far as the eye can see, and national debt (more accurately, gross federal debt) yet again bursting through its statutory limit of $28.4 trillion and soaring past 120 percent of GDP, a level previously reached only during World War II.

We’ve become so used to these unfathomable levels of deficits and debt—and to the once-rare concept of trillions of dollars—that we forget how new all this debt is. In 1981, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 40 years later, it’s more than $28 trillion. Traditionally, the national debt as a percentage of GDP rose during major wars and the Great Depression. But there’s been no major war or depression in the past 40 years; we’ve just run up another $27 trillion more in spending than the country was willing to pay for. That’s why our debt as a percentage of GDP is now higher even than during World War II. Here’s a graphic representation of the real dysfunction in Washington:

And the Congressional Budget Office tells us it’s going to get worse, much worse. See the following chart on page 2 of the CBO’s March 2021 Budget Outlook. The Obama‐​Trump spending pushed “debt held by the public” to levels not seen since World War II. Pandemic spending pushed the debt up to peak WWII levels. But it’s entitlement spending that will take the debt far beyond even today’s level. This is not a sustainable course.

Where did all this debt come from? Obviously, it came from the rapid increase in federal spending over the past several administrations:

Presidents George W. Bush, Barack Obama, Donald Trump, and Joe Biden have all spent money like they had a bottomless pit of it. And the easiest way to spend government money is not to ask the taxpayers to pay for all of it. We may pay in the form of crowded‐​out investment and other private economic activity and thus in reduced economic growth, but no president has proposed to actually raise taxes to match his spending increases.

Republicans and Democrats alike should be able to find wasteful, extravagant, and unnecessary programs to cut back or eliminate. They can find plenty of ideas here.

The debt limit doesn’t seem to limit the debt. So what’s the point of it? Well, at least it gives the political class a periodic reminder that they are piling trillions of dollars of debt on their children. And it focuses Washington’s mind on the spending‐​and‐​debt problem for a moment. If the Republicans who helped Mr. Trump add $7.8 trillion to the national debt in just four years really want to reclaim their reputation for fiscal conservatism, they could make a practical offer: support for raising the debt limit in return for spending reform. Jeb Hensarling, who served for six years as chairman of the House Financial Services Committee, has some suggestions:

A modest effort today might include the bipartisan Trust Act, which would fast‐​track reforms to fiscally challenged programs like Social Security and Medicare, as well as the bipartisan Prevent Government Shutdowns Act, which would reduce brinkmanship without increasing spending.

I have another idea: tell Speaker Pelosi and Majority Leader Schumer that Republicans will vote for an increase in the debt ceiling in return for Democrats dropping the somewhere-between-$3.5 trillion-and-$5.5 trillion‐​dollar spending bill.

Seriously, we’ve got the highest national debt in history, at more than 120 percent of GDP. Federal spending has reached levels even fiscal doomsayers didn’t predict. The federal government has spent some $6 trillion responding to Covid. Whether or not that spending was necessary in an emergency, any budgeter knows that when you have large unanticipated expenses, you cut back somewhere else. You don’t say “if we can afford $6 trillion for Covid, of course we can afford another $6 trillion in new programs and transfer payments.”

If the brinksmanship that has once again sent the establishment into dire warnings finally results in some constraint on out-of-control spending, then it will have been well worth all the hand‐​wringing. But it’s important to be clear: the serious dysfunction in Washington is not the occasional debt ceiling kabuki, it’s a political process that produces ever more spending, deficits, and debt.

David Boaz is the executive vice president of the Cato Institute and has played a key role in the development of the Cato Institute and the libertarian movement. He is the author of The Libertarian Mind: A Manifesto for Freedom and the editor of The Libertarian Reader.

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David Boaz is the executive vice president of the Cato Institute and has played a key role in the development of the Cato Institute and the libertarian movement. He is the author of The Libertarian Mind: A Manifesto for Freedom and the editor of The Libertarian Reader.

3 Comments

3 Comments

  1. John B

    September 27, 2021 at 11:30 pm

    Republicans only care about the deficit when there is a democrat president.
    Where were these budget minded republicans? When deficit grow in size during the first 3 years of the Trump presidency? When have tax cuts resulted in a budget surplus? Never!
    What emergency needed funding in the first 3 years? The farm trade war casulities to the tune of TWICE what Wall Street got in 2008! Did the GQP complain about deficit spending or the wealth transfer from blue states to red states? Their silence was deafening.

    The tax gap is what the IRS takes in and what it should take in is $500,000 billion a year. Taxes are NOT being collected from the people who should be paying. The number of Republicans who voted for this? Zero!

    Long term borrowing costs are ultra low. A smart business or government builds new factories, new machines, and trains workers to be more productive, when borrowing is cheap.
    Dumb ones purchase golf trips, and fast food and claim it is cheaper, than using the talents of the already employed highly skilled chefs.

  2. Mario DeLosa

    September 29, 2021 at 7:51 am

    It should not be called “raising the debt ceiling” rather, it should be called “paying your bills” because that is exactly what it is. It should also be noted that the GOP is not the party of fiscal responsibility, but don’t take my word for it, look at what is constantly spewing from the red side of the aisle; culture wars, abortion, lies about rigged elections, agoraphobic and xenophobic screaming about immigration, reasons why gays should not marry, idiotic reasons why you should not get your COVID vaccine or wear a mask during a pandemic, and a plethora of other BS that has NOTHING to do with fiscal responsibility. Still don’t believe me? The last time we were in the black was when Clinton was in office. Reagan gave money to the rich and over spent, G.W. Bush gave money to the rich and so did tRump. Obama for all his flaws orchestrated the post financial crisis recovery that tRump sabotaged with his welfare program for the uber rich and corporations. It is beyond belief that someone like Jeff Bezos spent less money in taxes than a family of four that is getting by on $45,000 per year. We can start fixing this issue issue not just by spending less, but also by closing the loopholes that make it possible for people like Bezos to make out like gilded era robber barons! And no, it is not unreasonable to require Bezos, Koch, Microsoft and Apple to pay taxes as well!

  3. ADM64

    September 29, 2021 at 11:34 pm

    Eisenhower said it best when he said that “there’s no security for a country that busts its economy.” The overwhelming majority of the spending is on the entitlements and similar structurally insolvent programs. Those need to be intelligently dismantled because they cannot be reformed. Meanwhile, all the “stimulus” spending needs to stop. If anything has been proven conclusively, it is that such spending does not stimulate economic growth and the fabled “multiplier” is almost always less than 1.0. It does, however, stimulate inflation, which after decades of being held in check or denied has now arrived in a serious way – exactly as those of us in favor of low spending long predicted. Meanwhile, the stupid claim that this spending is somehow analogous to private sector investing needs to be rejected. It isn’t. It’s just payoffs to particular constituencies.

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