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A Federal Shutdown Is an Annoyance — Interest on $22 Trillion in Debt Is a Problem

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President Trump’s decision to shut down the government
because Congress was supposedly spending $5.7 billion too little,
rather than too much, was hardly a traditional budget priority for
conservatives or libertarians. But the overheated partisan feud
distracted attention from a much larger issue that made the
shutdown possible — namely, that Congress has still not
enacted a budget. And the budget the president proposed is too
fat.

When fiscal year 2019 began on Oct. 1, Congress had enacted
only seven of the required twelve
appropriations, and even departments among the seven did not have
full-year appropriations. From Sept. 18 to Dec. 19, Congress only
passed short-term bills to fund neglected agencies for a month or
two. President Trump finally refused to sign another temporary
patch through February 8th unless it included $5.7 billion to
extend and improve the southern border barriers (far less than the
$18 billion Trump had first requested). But
even if Congress added that $5.7 billion to the last temporary
patch, it still would still have left the government with no budget
after February 8th.

Even if the president’s $5.7 billion mission was accepted,
that would soon leave 99.999 percent of the U.S. budget in limbo.
The remaining $4.4 trillion in the budget is the elephant in this
room and that big animal needs a diet. Federal spending rose by a
relatively modest 3.1 percent a year from 1993 to 2000, and the
economy and American citizens seemed content. Federal spending then
increased by 6.6 percent from 2001 to 2006, and by 8.5 percent a
year from 2007 to 2010.

Far from being a “stimulus,” as advertised, runaway
spending from 2001 to 2010 was at the expense of the private
sector, which performed poorly. Rising federal purchases absorbed
resources that would otherwise have been available to expand
private enterprises. Rising transfer payments discouraged people
from participating in the labor force.

With spending rising much faster than the economy, federal
spending jumped from 17.6 percent of GDP in 2001 to a record 24.4
percent in 2009 and 23. percent in 2010-11. Sequester limits
temporarily brought spending down to a still-high level of 20.3
percent of GDP by 2014 though spending rose to 21 percent of GDP
last year.

In just five years, 2007 to 2012, national debt held by the
public (rather than by Social Security and other trust funds)
doubled from 35.2 percent in 2007 to 70.4 percent of GDP by 2012.
The debt/GDP ratio has again been creeping up since 2015 — to
76.5 percent in 2017, 78.8 percent in 2018, and reaching 81.9
percent by 2022.

Allowing the national debt to rise so much faster than the
economy that supports it means a growing share of the federal
budget (if we had a federal budget) will be devoted to paying
interest to Treasury bondholders, many of whom are foreign.

The burden of government is measured by what it spends, not how
it pays for it. Within limits, national debt can be rolled over indefinitely, selling new bonds to
repay old, so long as the interest rate is below the growth of
nominal GDP (real growth plus inflation).

However, a national debt approaching $22 trillion has to be
serviced. Net interest paid out on the public debt increased 19.4
percent between the last quarters of 2017 and 2018, according to
the Congressional Budget Office, and exceeded the cost of
Medicaid. The Trump administration projects interest expense rising
from 1.4 percent of GDP in 2017 ($263 billion) to 2.4 percent in
2023 ($619 billion).

Over the years, Congress has carelessly delegated sweeping
discretionary authority to presidents to impose tariffs, stop
immigrants or start wars without congressional legislation or
approval. Presidential authority to shut down the government, by
contrast, is ceded only by congressional inaction — by
failure to enact a budget before the current fiscal year began. The
absence of any budget to put some bounds on federal spending is a
much more troublesome issue than a temporary partial government
shutdown, annoying as that surely is.



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