The House and Senate budget resolution: Building on sand
The Senate and the House, in their recent budget resolution, are embarking on what by all indications will be a well-intended, but thoughtless and undisciplined, commitment of resources that the nation does not have. Its leaders must rethink.
The COVID-19 pandemic wreaked havoc on our economy and society, beyond anything short of war in the memory of any living American. Fiscal and monetary policymakers properly responded in an unprecedented scale to the threat. The economy, thankfully, has bounced back more quickly than almost anyone dared hope. The recovery is not complete, and the virus must be put down. In part because of the swift public policy response and the historic scientific vaccine breakthroughs, the worst may well be behind us.
Today, the nation faces all its tasks from before the pandemic: educating our children; training our workers; investing in the infrastructure; knowledge and machines to grow for the future. Those tasks are no less daunting than they were before; in fact, they are much more so.
The massive budgetary response to the pandemic is not free. Like chemotherapy for a cancer patient, it bears dangerous side effects. And the nation’s fiscal health was already compromised. The public debt burden was growing unsustainably even before the pandemic. The pandemic and its response have added literally trillions more to that debt. The cost of servicing the debt is growing faster than the economy out of which it must be paid.
There is no precedent for an economy surviving such a swelling debt burden unscathed, but there are dozens of precedents for catastrophe. The public debt is now so large that even normal interest rates will drain the budget of funds needed to build for the future, in education, research and infrastructure. And if our lenders, foreign and domestic, become at all worried and demand even higher rates, the economy will be on a slippery slope to disaster.
Somehow, this is what some see as an “opportunity” — to expand massively a range of federal commitments from preschool to Medicare. It is unclear the sense in which this peril is an opportunity. Perhaps it is because the public has become inured to very large dollar numbers after the shockingly large pandemic response. In any case, this is an opportunity only to take a dire situation and make it far worse.
Even if the proposed budget program is “fully paid for,” as proponents struggle to argue, the harm is already upon us, and a large, fully-paid-for budget program will leave us with those excessive deficits.
Which is even worse than it sounds — in two separate respects. It is a fair description of the intent of this program that it will spend every dime that the policymaking process can possibly raise — with $3.5 trillion being surely well beyond the upper bound of possibility. But after every dime within reach has been spent on these new initiatives, what pennies will be left to address the already excessive deficits and the resulting already unsustainable debt?
This leads to the second rationalization — one that should not be at all appealing, given bitter experience. The budget resolution that the Senate has passed imposes no discipline whatsoever on the budget reconciliation bill that is to follow. The language in the resolution vests full authority to change any number contained in it in the Budget Committee chairman, who has already said that the reconciliation bill will be paid for in part by long-term economic growth. In other words, the advocates will assume that the economy will grow fast enough to offset the cost of the new spending. The nation has seen this play before.
In sum, the nation cannot afford a spending program that leaves no flexibility to address our already existing unsustainable deficit and debt; and there is no intention that this spending program is fully paid for in the first place.
The nation faces urgent needs to invest for the future. But not least among those needs is to slow the growth of the public debt to the rate of growth of the public’s capacity to service it. Failing that, all other public investments will be built on sand. The budget program must be redesigned to face up to that reality, and the reconciliation process must return to its original purpose of reducing, not increasing, deficits and debt.
Joseph J. Minarik is senior vice president and director of research at the Committee for Economic Development (CED) of The Conference Board.
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