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  Collapse of Political Will

  By James Annable | Apr 20, 2018

  This post takes a break in the GEM Blog’s mission to explicate generalized-exchange modeling, substituting a policy update. With the constant political turmoil in Washington, some really important recent news got lost. The Congressional Budget Office released projections indicating that the federal government annual deficit, given unchanged fiscal policy, will exceed a trillion dollars by 2020. Again with unchanged policy (e.g., no deficit-financed ambitious federal infrastructure program or “beautiful” wall along the Southern border), the total national debt which today is just above $21 trillion is projected to reach $33 trillion in 2028. That would make the publicly held portion of the debt equal to the total U.S. gross national product. Fiscal-policy experts consider that close to or past an extreme crisis point that unleashes unmanageable reactions, greatly damaging the well-being of the country at large.

  My conclusions are rooted in considerable expertise. I ran macroeconomic analysis at the CBO, producing many deficit/debt projections, during the last time (the early 1980s) a large tax cut (absent significant spending reductions) threatened to generate an extended run of outsized federal deficits. The experience produced perspective, summarized below, that is useful in making sense of the recent hurried sharp turn in fiscal policy.

  First, the projections are not a mistake. Especially in periods of full employment which we are clearly experiencing today, accurate deficit/debt projections are relatively easy to do. I could have come up with a result similar to CBO’s with a pencil and the back of an envelope. We must face up to it. With unchanged fiscal policy, the credit of the United States during the CBO’s timeline is going to become a hot mess.

  Second, accelerating economic growth will not reduce the projected deficits. The cyclical recovery is largely complete. Over the next two decades, hoped-for growth in employment and output above recent trends will not happen. In fact, discernible economic headwinds will work to significantly slow growth. Most notably, demographic forces (pretty easy to project) will...

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