Somewhat overshadowed by the row about the sequester yesterday were the Congressional Budget Office’s very bleak numbers about anticipated debt and the impact on growth. Economist Douglas Holtz-Eakin and Gordon Gray of the conservative American Action Forum observe, “CBO’s baseline confirms that the nation, despite claims to the contrary, remains on a damaging debt pathway.” They observe that debt will remain over 90 percent of gross domestic product for the period 2013-2023, resulting in a drag on growth equal to 1 percent per year. That translates into a total loss of 11 million jobs for that period. Moreover, by 2023 Medicare, Medicaid and Social Security will comprise about 64 percent of the budget, “crowding out other federal priorities.”
The obvious solution is to stop spending so much on entitlement programs. The problem is that the president won’t do that, insisting on raising taxes (a trivial amount compared to the debt but nevertheless another drag on an economy that isn’t growing) or cutting relatively small amounts in discretionary funding (the remaining part of the sequester is less than $1 trillion). As the Wall Street editorial board reminds us, “The budget gnomes say the economy will expand by 1.4% in 2013 and 3.6% on average after that. But every year since 2009 CBO has predicted that a new burst of growth is just a year or two away. Perhaps the Panglosses should revisit their optimism as the new taxes corrode work and investment incentives.”
But for all that we really don’t get a handle on the debt (“The deficit will fall this year to $845 billion, which is below $1 trillion for the first time in the Obama Presidency. But at 5.3% of GDP, this will still be the biggest post-World War II deficit except for 1983 (a one-time pop to 6%) and Mr. Obama’s previous four years. So despite the record revenue surge, CBO says federal debt held by the public will continue to rise to 76.3% of GDP this year, up from 36.3% as recently as 2007.”).
To recap, the president has insisted on raising taxes and continuing to spend with abandon. Our economy remains anemic while we have done virtually nothing to change the trajectory of the debt. This is a recipe for a lost decade (or two) — high unemployment, low growth, falling wages and high debt. On this economic foundation the president wants to build his dream liberal welfare state. If the ratings companies don’t downgrade our credit rating in the short term (delivering an immediate body blow to the economy), the Obama economy will gradually slope downward, leaving us poorer, the economy weaker and the debt bigger than ever before.
If the Republicans can’t offer a better future than that, then they really should close up shop. There has to be a political party out there that is willing to set a new course of entitlement reform, economic growth, reasonable limits on spending and a sane tax and regulatory system. If not, the country is in deep, deep trouble.