Our economic outlook is lousy if we keep on our current path. That was the message Congressional Budget Office Director Douglas Elmendorf delivered in June, and it is all the more true as the economy has ground to near-zero growth.
Elmendorf told the House Budget Committee that “large budget deficits and growing debt would reduce national saving, leading to higher interest rates, more borrowing from abroad and less domestic investment — which, in turn, would lower the growth of incomes in the United States.” He explained other negative consequences of our growing debt:
Greater debt would result in higher interest payments on that debt, which would eventually require higher taxes, a reduction in government benefits and services, or some combination of the two.
Rising debt would increasingly restrict policymakers’ ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises. As a result, the effects of such developments on the economy and people’s well-being could be worse.
Growing debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates. Such a crisis would confront policymakers with extremely difficult choices. To restore investors’ confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that would have been necessary had the adjustments come sooner.
In very simple terms, the huge expansion of our debt will make us poorer, decrease growth, limit job opportunities and leave government without the ability to do things for which there is widespread support. I may have missed it, but I don’t think Mitt Romney has spelled that out and pointed out that President Obama’s policies have made that bleak future more likely. After all, it was Obama who increased the debt by $6 trillion, never tackled entitlement reform and keeps telling us the fairy tale that tax hikes on the rich will be enough to set us straight.
Today the Romney camp is peppering the media with comments on the American Enterprise Institute study, which looks at one aspect of this: We will need to raise taxes on the middle class just to finance the debt if Obama’s policies continue.
Obama may say, well, I have this $4 trillion debt-reduction plan.. But we know that is bogus. Or he may say, yeah, I really did run up the debt but we’re going to make it up with stunning economic growth. But current projections show very tepid growth in 2013 (and the heavy debt will weaken growth even more, as the CBO observed). In other words, Obama has run up the debt, the predictable consequence of which is slow growth, high unemployment and the likelihood of a jumbo tax hike.
Richard Rahn of the Cato Institute puts it this way in an op-ed today:
After increasing government spending by 22.4 percent from President Bush’s last budget request and raising the national debt by more than 50 percent in less than four years, the Keynesian theory that Mr. Obama professes says the United States should have reached nearly full employment (5.3 percent, according to administration projections). . . . In the late 1980s, I testified before Congress using empirical data with which I showed (in a curve) how, as governments get larger as a percentage of gross domestic product (as ours has under President Obama), economic growth and employment slow — not rise. My argument has been replicated and updated by many other economists in the years since, with similar results.
The simple fact is Mr. Obama seems wedded to a theory that has not worked and never can. Thus, it is almost a certainty if he is re-elected, unemployment will not fall, many more businesses will downsize or go bankrupt, the economy will stagnate and the continuing rise in the deficit will be very costly for all.
Romney-Ryan should forget the zingers. Forget pouncing on every inane thing Vice President Biden says (they’ll never keep up).If they can explain that supersizing the government and the debt is putting us all in the poor house, the GOP presidential ticket will be on its way to victory.