Douglas Holtz-Eakin, a former director of the Congressional Budget Office, has an article in today’s Wall Street Journal, in which he predicts — correctly in my opinion — that we are headed for a fiscal iceberg.
Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion — the highest since World War II — as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.
Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 for every American. By 2019, according to the Congressional Budget Office’s (CBO) analysis of the president’s budget, the deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.
This is also nothing new. The national debt was for most of American history, as Hamilton said it would be, a “national blessing.” It allowed us to fight and win our wars and to relieve suffering in an economic depression far worse than what the country is experiencing now. But in the last thirty years — the most prosperous and relatively peaceful thirty-year period in American history — liberals and “conservatives,” Democrats and Republicans alike in Washington have allowed the debt to explode for their short-term political benefit while they hid the truth with phony accounting.
How bad was it? Consider this: In 1980, the debt was 33.3 percent of the country’s GDP. By 1990 the GDP had increased by 37.6 percent in real terms. But the debt had grown much faster. It was 55.9 percent of the much larger GDP. In the 1990′s GDP increased by 39.7 percent, and the debt more than kept pace. It was 58 percent of GDP in 2000. At the end of 2008, GDP had grown 18.5 percent over 2000, and the debt was fast approaching 80 percent of GDP. And the debt, being denominated in dollars, is made smaller by inflation while GDP is enlarged.
No one believes that the debt can be kept under 100 percent of GDP in the near future. And if Obamacare gets passed in anything like its present form, it will only makes matters far worse. As Mr. Holtz-Eakin explains, President Obama’s promise not to sign a bill that adds to the deficit is false:
. . . the bills are fiscally dishonest, using every budget gimmick and trick in the book: Leave out inconvenient spending, back-load spending to disguise the true scale, front-load tax revenues, let inflation push up tax revenues, promise spending cuts to doctors and hospitals that have no record of materializing, and so on.
If you’re disturbed by the long-term outlook for the country’s fiscal health, you shouldn’t be. You should be terrified.