Yellen sounds the debt alarm on her way out the door

Yellen sounds the debt alarm on her way out the door
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In what could be one of her last public statements as Federal Reserve Board chairwoman, Janet Yellen on Wednesday issued a stern warning about a looming threat facing the nation: runaway deficits and debt.

Addressing a Joint Economic Committee hearing, Yellen stated the obvious: The long-term picture is not pretty.

“As our population ages, expenditures on Medicare, Medicaid and Social Security grow more rapidly than tax revenues, and the debt-to-GDP ratio moves up," Yellen said.

She called the trajectory “a very significant concern” that “should keep people awake at night.”

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Yellen’s warnings are hardly unique. They echo most mainstream economists and the Congressional Budget Office’s long-term economic forecasts referenced by Yellen in the hearing. Most elected officials at least claim to be troubled by the growing burden, though perhaps more or less so depending on whose policies might be adding to it at the time.

 

However, as John Tamny argues in Forbes, the deficit isn’t the problem per se — government spending is (I disagree with his assertion that deficits don’t matter at all, but that is a longer discussion).

As he puts it, “Government spending is logically an effect of growth. Governments only have spending capacity insofar as their citizens are producing real wealth for them to tax and subsequently spend.”

Even without budget deficits, transferring resources from the private to public sector can impose real costs long before the consequences of deficits come home to roost.

But regardless of ideology on spending more broadly, nearly everyone agrees that the status quo is not sustainable. While Democrats currently are objecting to the prospect that the president’s tax plan will add to the deficit, there remains no indication that leadership in either party has a coherent plan to deal with the root of the problem.

In fact, news broke last week that Republican leaders are considering a deal to hike spending and breach budget caps as part of a two-year deal that would conveniently delay any further decisions until after the 2018 midterm elections. While this particular deal may fall apart because Democrats want even more spending, trouble is on the horizon regardless.

Yellen’s warning came ahead of statements today from Sen. Susan CollinsSusan Margaret CollinsIs a trap being set for Trump in the Senate trial? The Hill's Morning Report — Sponsored by AdvaMed — House panel delays impeachment vote until Friday Senate gears up for battle over witnesses in impeachment trial MORE (R-Maine) that Republicans will seek a waiver to the “paygo” budget rules stipulating that tax cuts must be offset by other revenue increases or mandatory spending cuts.

Without the waiver, the tax bill would trigger an estimated $25 billion in cuts to Medicare — cuts that Collins has said would end her support for the bill.

The tedious waiver fight is just the latest example of what happens when Republicans are unwilling to address the dramatic rise in federal spending since the early 2000s.

This latest hesitancy to deal with direct spending is perhaps not surprising given the president’s consistent opposition to entitlement reform, or even past Republican opposition to Medicare cuts that were one of the few wins for fiscal conservatives in 2010’s Affordable Care Act.

Given years of promises and rhetoric from nearly every Republican about getting spending under control, this latest opposition is disappointing at best.

Of course, if many Republicans make empty promises on spending, it’s hard to find anyone on the opposite side of the aisle who even claims to be for meaningful spending reduction.

While the Obama administration created some “odd couple” alliances among fiscal hawks and Democrats on issues like Pentagon spending, now, Democratic attention seems to have shifted to advocating for more domestic spending in exchange for the higher Pentagon spending Republicans want.

Yet again, many elected officials make the all-too-familiar bargain of “I’ll vote for your spending, if you’ll vote for mine.”

How the long-term economic outlook will unfold is not easy to know, as fluctuations in economic growth are hard to predict precisely. But at least in modern times, what’s less difficult to know is that government spending is likely to move in only one direction.

Jonathan Bydlak is the founder and president of the Coalition to Reduce Spending, an advocate for lower federal spending, and the creator of SpendingTracker.org. A fiscal policy expert, he also served as director of fundraising on Ron Paul's 2008 presidential campaign. Follow him on Twitter @jbydlak and @Reduce_Spending.