“The new CBO debt study is way worse than the media is telling you”
Almost all media reports about the Congressional Budget Office’s new long-term budget analysis will highlight its forecast that the federal public debt, now about 73% of GDP, is on track to reach 100% of GDP in 2038. Now that’s scary enough. As Maya MacGuineas of the Committee for a Responsible Federal Budget puts it: “Today’s report confirms exactly what we have been warning — that the debt is on an unsustainable long-term trajectory.”
So over the next 25 years, Americans will be taxed more to pay for a federal government that will more purely become a redistribution, wealth-transfer mechanism. Taxes and spending at record highs. America as a nuclear-armed insurance company.
But here’s the thing: that forecast, as the CBO notes, does not factor in “the harm that growing debt would cause to the economy.” Hey, that would be a good thing to know, right? Well, you have to dig deeper into the CBO study to find those numbers.
And when you take into account stuff like how deficits might “crowd out” investment in factories and computers and how people might respond to changes in after-tax wages, you find the debt is much, much larger, closer to 200% of GDP.
Projected budgetary outcomes under the extended alternative fiscal scenario are worsened by the economic changes that result from its policies. With the effects of lower output and higher interest rates incorporated, federal debt held by the public under the extended alternative fiscal scenario would reach 190 percent of GDP in 2038—about 80 percentage points greater than that under the extended baseline with economic feedback— according to CBO’s central estimates.
Then there is this:
Assumptions leading to the most negative impact on GNP, debt would reach 250 percent of GDP shortly after 2038. In CBO’s judgment, the agency’s model cannot provide reliable estimates of the economic impact of debt exceeding that magnitude: The model incorporates responses of private saving and capital inflows to fiscal policy that are based on historical experience, and if interest rates and the debt-to-GDP ratio rose to levels well outside of that experience, the estimated responses would probably no longer be valid.
In other words, the models break down. And maybe the economy, too. Remind me again, why should Washington not use the current debt-ceiling limit as a handy opportunity to do something about entitlements?
That’s easy: because the Republican leadership is out for itself; there is no longer any regard for constituencies; re-election of incumbents is rigged heavily in their favor — and procedural tricks (like impotent votes for defunding ObamaCare) are used to give legislators cover, while they continue to kick the can down the road and collect all that federal revenue both parties hope one day to have control over; and we have progressives and “Republican realists” — inside Congress and inside the messaging centers — both pretending we live in a two party system, when in reality, we live in a single-party environment wherein the theatrical squabbling is over which faction of the left — the far left of the more center left — will get control over the subjects / ATMs they’ve turned the one-time owners of the government, we, the people, into.
Or, if you want a more succinct answer, Washington won’t do anything about it because none of them plan to be around when thing goes tits up — or else, they’ll have accumulated the connections and clients and lucre and golden parachutes they need to keep themselves flush while the rest of us suffer for their hubris and greed.