Forget Budget Wish Lists. A Sluggish Economy Calls For Much Less Federal Spending

Yesterday, we had President
Obama’s
budget proposal as ideological telegram, complete with a
mindboggling price tag well beyond what the U.S. government can
afford to spend. To be fair, many of his opponents in the
Republican Party apply just that sort of “only the best for us” to

every expensive toy on which the Pentagon wants to blow a billion
bucks. But not only has the federal government been spending
well beyond its means for years, but the economy is expected to be
uncooperative—read that as sluggish—in years to come, requring even
lower levels of federal spending if the behemoth on the Potomac
isn’t to go completely tits-up and leave American taxpayers holding
the bill.

On February 4, the Congressional Budget Office (CBO) predicted:

the deficit is projected to decrease again in 2015—to $478
billion, or 2.6 percent of GDP. After that, however, deficits are
projected to start rising—both in dollar terms and relative to the
size of the economy—because revenues are expected to grow at
roughly the same pace as GDP whereas spending is expected to grow
more rapidly than GDP.

That growing gap between what we spend and what we can afford to
spend has consequences, reports the CBO.

The large budget deficits recorded in recent years have
substantially increased federal debt, and the amount of debt
relative to the size of the economy is now very high by historical
standards. CBO estimates that federal debt held by the public will
equal 74 percent of GDP at the end of this year and 79 percent in
2024 (the end of the current 10-year projection period). Such large
and growing federal debt could have serious negative consequences,
including restraining economic growth in the long term, giving
policymakers less flexibility to respond to unexpected challenges,
and eventually increasing the risk of a fiscal crisis (in which
investors would demand high interest rates to buy the government’s
debt).

That is, deficits build up debt, which acts as a net drag on the
economy and prosperity and, oh yeah, further reduces the resources
available to the politicians on their spending spree.

But, here’s the sad truth: that “restraining economic growth,”
for whatever reason, is already a thing. In that same report, the
CBO forecast sluggish economic growth to come:

the growth of potential GDP over the next 10 years is much
slower than the average since 1950. That difference stems primarily
from demographic trends that have significantly reduced the growth
of the labor force. In addition, changes in people’s economic
incentives caused by federal tax and spending policies set in
current law are expected to keep hours worked and potential output
during the next 10 years lower than they would be otherwise.

Just a few weeks later, on February 28, the CBO specifically reduced
expectations for potential output in 2017 by 7.3 percent.

So, the CBO itself says that federal policy is already acting as
a drag on the economy on which sky-high plans for federal spending
are based—and those spending schemes themselves threaten to further
slow the economy.

Oh, swell.

Just last week, Reason science columnist Ron Bailey
looked at
predictions that the U.S. is entering an extended period of
economic stagnation. He found some of the forecasts about
declining technological payoffs to be unduly pessimistic, but
agreed that “government debt overhang [will] slow growth,” and
probably by more than predicted. Ultimately, he believed
we’ve been given “fair warning of the doleful direction in which
the economic headwinds are blowing.”

Not only are elected federal officials spending far more than we
can afford, they’re consuming the seed corn from which future
economic growth must come, reducing the prosperity we all hope to
enjoy as well as the resources on which officials hope to draw for
their future spending schemes.

The longer this continues, the less the federal
government will be able to spend in the future. And the less
wealthy Americans will be.