Who’s Afraid of the Federal Debt? (Washington Examiner) November 19, 2019

Congratulations, Washington, you have set another record. The Treasury Department announced recently that the federal deficit rose an astounding 26% during the last fiscal year, bringing the total one-year deficit to nearly $1 trillion. The cumulative federal debt is now more than $22 trillion, greater than our total gross domestic product for the year. Federal Reserve Chairman Jerome Powell has declared the debt situation “unsustainable.” In his 2016 presidential campaign, Donald Trump said he would eliminate the deficit in 8 years. Instead, he has presided over a nearly 50% increase.

Like other presidential candidates, he probably failed to realize there would be math on the test.

It occurs to me that we should now pose the question raised by the Three Little Pigs in their classic 1933 Disney cartoon: “Who’s afraid of the big bad wolf?” Like some in Washington, pig No. 1, unafraid of the wolf, “built his house on hay and played around all day.” Pig No. 2, seeing no real danger from the wolf, “built his house with twigs and danced with lady pigs.” Only pig No. 3, who toiled mightily to build with bricks, saw his house survive all the huffing and puffing when the wolf blew into town.

Who, then, is afraid of the big bad budget deficit? Not President Trump, who has decided to build his house on the promise of economic growth. Trump’s economic strategy has been growth at all costs, which he has pursued with tax cuts, high tariffs, and jawboning the Federal Reserve to cut interest rates. Apparently, he thinks he can outrun the big bad wolf. However, despite a rising economy, government red ink has grown faster than the economy. Tax revenue has fallen more than $400 billion short of projections from the Congressional Budget Office, and government spending is up at twice the rate of increased tax revenues. Already losing the race, the likelihood of more modest economic growth will doom this strategy.

Likewise, Democrats running for the presidency are ignoring the budget deficit, proposing to build their campaign house on even higher federal spending. “Green New Deals,” “Medicare for all,” and free college tuition are the building materials of Bernie Sanders, Elizabeth Warren, and others — all projected to add tens of trillions of dollars of new federal spending. Although the Democrats talk of increasing taxes on the wealthy to help pay for some of this, new federal spending is not tied directly to new sources of revenue and, as we have learned the hard way, it is always easier to get Washington to pass a spending bill than a tax increase.

Finally, Congress has allowed the federal budget house to be built of flimsy materials. Although the Constitution delegates to Congress the spending power, in practice, the president and his Office of Management and Budget take the lead. Not only does Congress not operate as a check on spending, it usually increases it.

The last budget agreement between the president and Congress is typical: The president wanted and received more money for the military, and, in exchange, Congress sought and was granted greater spending for its domestic priorities.

There is no check on the budget; it only ratchets one way: up.

This leaves only you and me to be afraid of the federal debt. Like the 2008 housing crisis, it is a bubble waiting to burst. No one knows how much debt is too much, and it just takes some of the nations that own our debt to lose confidence and stop buying it or call it. At $1.2 trillion, China owns more of our debt than any other nation. The debt also risks future entitlements such as Medicare and Social Security, which have created most of the massive increase. Moreover, the debt creates an immoral transfer from today’s lack of discipline to future generations. As former President Herbert Hoover put it: “Blessed are the young for they shall inherit the national debt.”

You and I should be afraid of the federal debt, and through the ballot box we must make Washington afraid, also.

To view the column at the Washington Examiner:

https://www.washingtonexaminer.com/opinion/whos-afraid-of-the-federal-debt

David Davenport is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a research fellow at the Hoover Institution. He is the co-author, with Gordon Lloyd, of How Public Policy Became War, published May 7.