Why aren’t the alarm bells ringing?
But the bells are ringing.
Then why aren’t we listening?
Here is one bell ringing true and clear. Writing in The New York Times last week, Alan Rappeport reported, “The United States federal budget deficit jumped 26 percent in the 2019 fiscal year to $984 billion, reaching its highest level in seven years as the government was forced to borrow more money to pay for President Trump’s tax and spending policies, official figures showed on Friday.”
The annual deficit will almost certainly exceed $1 trillion in the current year that began October 1. Another way to write $1 trillion is $1,000,000,000,000.
Rappeport’s report is only one gong of many bells ringing.
President Donald Trump may have missed Rappeport’s alarming statement of the situation. Just before his article was published, the White House canceled its subscription to the Times.
But the bells are ringing elsewhere.
Everywhere, in fact. Almost every serious economist agrees that the growing deficit is unsustainable.
It is easy to blame the situation on Trump, who campaigned on a promise to eliminate deficits over eight years.
“Instead,” writes Rappeport, “he has allowed deficits to balloon by enacting sweeping tax cuts and increasing government spending. The rising levels of red ink have come despite a period of sustained economic growth, when budget deficits typically fall as households earn more money, corporations make higher profits and fewer people use safety net programs like unemployment benefits and food stamps. The United States entered its longest expansion on record in July and the jobless rate is at a 50-year low, yet the deficit has continued to widen.”
A big part of the deficit increase is the result of tax cuts that Trump brags about. The promised pay-for-itself-increase in tax revenues from economic growth is falling $400 billion short of projections.
Federal government spending is growing twice as fast as its revenues.
But Trump is not the only one to blame. He had help from Democrats in the Congress. In the August budget deal that included $320 billion in spending increases over two years, Republicans got more money for defense spending and Democrats got more for domestic programs. Neither side provided for increased revenues or cuts in other spending to pay for the new spending.
Whatever concerns they had about increasing the deficit they kept to themselves.
The major Democratic presidential candidates are proposing ambitious and costly domestic spending plans without specific revenues to pay for them. They are not addressing the risks of the increased deficit spending.
What are those risks, other than shifting the responsibility of paying for our spending to future citizens, including our children and grandchildren?
Amazingly, a few economists are not worried. They say countries like the U.S. need not worry so much because our central bank can just print all the money the country needs. They downplay the risks that deficits will stifle borrowing by consumers and businesses and lead to recessions.
We should not be fooled by these people.
As the deficit increases, so does the national debt and the amount of interest that has to be paid each year. Even with the low rates the government currently pays, interest costs rose last year by 16 percent to $375 billion.
In the 1990s Canada faced a crisis that had resulted from a budget deficit spiral. As deficits accumulated year after year, interest costs increased from 10 percent of Canada’s spending in the 1970s to 30 percent in the 1990s. The country’s high and unsustainable debt growth scared away investors and its economy suffered. Rating agencies downgraded their debt. The Wall Street Journal called Canada a “basket case” and “an honorary member of the Third World.”
Canada recovered, but painfully.
Our country should learn from our neighbor’s experience and act decisively now to bring the deficit under control.
The alarm bells are ringing.