As policymakers begin fighting over this year’s appropriations, the Congressional Budget Office has released a long-term projection that puts today’s budget battles in broader context. The federal government is in the most unique and dangerous fiscal situation that it has ever been in during peacetime.
Federal spending and debt as a share of GDP are being sustained at very high levels, and that is sapping the nation’s economic vitality. Spending and debt remove resources from the voluntary, productive, and innovative sector of the economy and put those resources in the hands of the coercive, mismanaged, and centrally planned sector. The more that spending and debt rise, the more of our freedom and prosperity are destroyed.
During brief periods to fight justified wars, it is reasonable to hand over more resources to the government. But the following two charts show that spending and debt are already at remarkably high levels for peacetime, and CBO projections to 2050 show the situation getting much worse.
Figure 1, below the jump, shows federal debt held by the public as a share of GDP from 1790 to 2050. The data for past years are from CBO analyses here and here. The projection is CBO’s new extended baseline.
Before the current spike, federal debt never rose above 48 percent of GDP during peacetime. Right now debt is 73 percent of GDP and CBO projects that it will rise to 129 percent by 2050 without reforms.
In the past, debt peaked during wars (the War of 1812, Civil War, WWI, and WWII), but afterwards there were always long periods of fiscal retrenchment. Indeed, for the nation’s first 140 years, the Jeffersonian dislike of government debt held sway among policymakers. The rise of Keynesianism in the 1930s started to soften views about debt, but the recent political acceptance of peacetime debt at near-WWII levels is very disturbing.
Chris Edwards is the director of tax policy studies at the Cato Institute, and editor of www.DownsizingGovernment.org. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation.
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