Does unbridled federal spending have an economic cost? Can national debt rise further than the entire US economy without consequence? Sooner or later, Americans will find out how Congress and the Biden administration are using the pandemic to justify an unprecedented surge in spending in peacetime.
For the sizes concerned, the best current overview came this week in the 10-year budget forecast of the annual budget office of Congress. It deserves more attention than it gets because Americans will pay for it for decades.
According to the CBO, federal spending hit $ 6.55 trillion in fiscal 2020 when Congress addressed the damage caused by Covid-19 and the government shutdown. That’s an increase of $ 2.1 trillion in a single year, understandably given the uncertainty of the threat that emerged this spring. Remarkably, and with a pleasant surprise, revenue fell just 1.2% to $ 3.42 trillion as the economy performed better than expected. The deficit was a staggering $ 3.13 trillion, or a record 14.9% of GDP.
What about the future? CBO does not anticipate any significant budget improvement this year as spending is still at 26.3% of GDP. The deficit will be $ 2.26 trillion, or 10.3% of GDP. By comparison, the deficit for Barack Obama’s entire first term was $ 5.1 trillion, and the deficit as a percentage of GDP has not been that high since 1945. Even at the height of the 1983 recession, it only reached 5.9%.
CBO assumes that spending under current law will average 21.9% of GDP over the next ten years. That doesn’t include Mr Biden’s $ 1.9 trillion Covid bill and other plans, however. The Democrats are promising another trillion dollar bill for “green” public works later this year. Investors face a subsidy shortfall, measured against the fantastic market valuations of electric cars and renewable energy companies.