It’s hard to believe, but the last time that the U.S. Congress approved a budget on time and in full was in 1997. This was before smartphones were ubiquitous and social media changed the way humans interacted with each other. Even more worrying, the U.S. Congress has failed to pass a budget that was balanced since 2000.
In 2000, the national debt was $5.6 trillion, compared with our GDP of $10 trillion. These figures are almost the opposite today. Our national debt is now at approximately $33 trillion while our GDP is up to $25 trillion.
In other words, two decades ago our economy was humming at a rate of four percent and our debt-to-GDP ratio was healthy at 54 percent. Our economic growth barely exceeds two percent per year, and our debt-to-GDP ratio is a dreadful 130 percent.
This is clearly unsustainable. This is not only unsustainable but also immoral, as Congress continues to load future generations with mountains of debt, simply because it lacks the courage to make tough decisions about the federal budget.
Total federal spending in fiscal year 2022 was a staggering $6.3 trillion. In fiscal year 2019 before COVID-19, the federal budget only spent $4.4 billion.
It is very difficult to cut actual spending once agencies have received additional funding. This is because the federal government operates on a baseline budgeting system, rather than a zero-based budgeting system. The federal government’s vast bureaucracies, which are deeply ingrained in the leviathan, always demand more spending, not less.
This aspect of the budgeting process is a minor problem compared to the real issue: the Big Three programs on autopilot, namely Social Security, Medicare, and Medicaid.
Social Security, Medicare, and Medicaid will account for nearly half the federal budget in fiscal year 2022. Here’s the problem: As Baby Boomers retire and continue to depend on Social Security, Medicare, and other benefits, these programs are edging ever closer to bankruptcy.
CBO predicts Social Security’s insolvency within the next 10 years. CBO also predicts that Medicare will be insolvent within the next five-year period. The real test will come when these massive programs run out of money. As the interest rate on debt rises and debt payments increase, the federal budget will become more squeezed.
It could either be positive or negative. Optimists may claim that the federal government will be forced to eliminate frivolous initiatives, redundant agencies, and inefficient programs. On the other side, we could also see significant cuts in national defense and important institutions.
The worst-case scenario is if future Congresses eliminate the debt limit and embrace modern monetary theories (MMT), in which debts and deficits are irrelevant. Some members of Congress are pushing the MMT model. This allows the federal government to print unlimited amounts of money. This will, of course, lead to hyperinflation.
There are other ways that Congress can avoid a debt crisis and the devastation this would cause.
Congress must first and foremost cut spending in order to slow down the growth of debt in the long term. The federal government will be facing trillion-dollar deficits for years to come. The federal government must immediately reverse this trend by reducing the amount of fat in the budget, particularly with respect to wasteful domestic expenditures. The 2023 Congressional Pig Book is a great guide for Congress. It contains a list of unnecessary spending measures.
Second, Congress needs to compromise on the future of these three programs that continue to consume more budget each year. This almost happened in the mid-2000s when then-President Obama (R) and then-Speaker John Boehner of the House (R-OH), came close to a ‘Grand Bargain. But that agreement fell apart and since then, there hasn’t been a genuine effort to engage in an honest dialog about how to rescue these programs.
Congress should prioritize policies to promote economic growth, rather than stifle it. There are many low-hanging fruits to be picked on this topic. Congress could, for example, reform the complex tax code and reduce the burdensome regulations. It could also allow American energy once again to dominate the world, as well as encourage Americans to get back to work rather than live off the dole.
It is still possible to bring our national debt under control by making comprehensive, long-overdue reforms that will ignite a new era of economic growth.
In the late 90s, the introduction of personal computers, mobile phones, and other emerging technologies led to a boom in the economy that produced a balanced budget, as well as booming economic growth. We are on the cusp of another technological revolution with AI, autonomous cars, and other technologies on the horizon.
It is essential that the United States maintain its position as a global superpower at the dawn of the 21st century.