The great deficit gamble

By Robert Samuelson

 

It’s getting harder and harder to write these budget columns, because it must be obvious to almost everyone by now that hardly anyone in Washington (or perhaps any place) cares about the budget deficits. The assumption is that we can raise spending and cut taxes forever — or until some crisis occurs that forces us to do involuntarily what we won’t do voluntarily.

There is a bipartisan consensus of sorts that the presumed discipline of balancing the budget — discarding the least useful programs and increasing the least burdensome taxes — has been overtaken by expediency. Why bother to curb budget deficits when there seem to have been few, if any, damaging consequences in letting them continue?

Just for the record, it’s worth reciting the basic facts in the latest report from the Congressional Budget Office. It demonstrates the nonchalance with which the budget is now treated by both parties.

According to CBO estimates, massive deficits stretch as far as the eye can see. Between 2020 and 2029, the projected deficits total $12.2 trillion, which is nearly $1 trillion more than was estimated in May. In every year after 2020, the deficit exceeds $1 trillion and is more than 4% of gross domestic product (GDP). By 2028, the projected deficit is 5% of GDP.

The actual deficits will probably be higher, even though the CBO projections assume — unrealistically — that there will be no recession during this period and that the unemployment rate will remain near “full employment.” But some existing tax cuts and spending cuts will probably be reversed, as they have been in the past. Passage of the Bipartisan Budget Act of 2019, which was mainly responsible for this year’s deficit increase, was simply a prototype.

Among Republicans and Democrats, there is little sense of embarrassment about this. The Trump White House is said to be searching for new economic stimulus policies, presumably further tax cuts, to bolster President Trump’s reelection prospects. This seems reminiscent of Third World countries that pump up the economy during election years, because that’s what it is. Naturally, the president is also pressuring the Federal Reserve to reduce interest rates for the same purpose.

The conspicuous cynicism of a president trying to buy his own reelection with the public’s money, even if that money is borrowed, is stunning. Of course, self-serving efforts to boost the economy during an election year are hardly unique to Trump, but he has taken the practice to new lows.

Meanwhile, Democrats can’t brag. Their presidential candidates have proposed a heap of costly programs. Universal health coverage. Free college. Subsidized jobs. More child-care subsidies. The list runs on. Democrats suggest implausibly that taxing the rich and corporations will cover the costs. This is dubious, but even if it weren’t, it conveniently overlooks the existing trillion-dollar deficit. Who’s going to pay for these programs?

Democrats have been particularly bad in not pushing the country toward a society that can handle a dramatically aging population, which is healthier and wealthier than in the past. By and large, Democrats have fed the stereotype of all the elderly as poor and decrepit. A sensible society would have prepared for this predictable future by gradually raising eligibility ages for public programs and reducing benefits for the affluent old. Social Security and Medicare dominate the federal budget and are crowding out other important priorities.

The irony is that both Republicans and Democrats are partially right. Presidents and congresses of both parties have delayed for so long in addressing these problems that there is no gentle way to push the budget back toward balance without inflicting real pain: deep spending cuts and higher taxes. In the 1990s and early 2000s, a less disruptive approach might have been possible. There were many warnings and almost no action.

The best we could have expected is that the president and Congress wouldn’t make the problems worse. But they are. The implicit hope of present policy is that the world’s demand for so-called “safe assets” — mainly U.S. Treasury securities — means that we can spend more than we tax, with the shortfall being made up by perpetual borrowing.

This is a high-stakes gamble. The possible ways in which a world sated with dollar securities could trigger a financial or economic crisis are many. The consequences of a run on the dollar — the currency most held by multinational firms, international banks, investors and traders — would clearly destabilize the world economy. A prudent society would recognize this and take preventive steps.

Instead, we are just raising the risks, seemingly determined to learn how much we can test the bounds of our ignorance.

 

(c) 2019, The Washington Post Writers Group