Fiscal policy expert says state of national monetary policy is bleak, partisanship to blame
Steamboat Pilot & Today
One of the nation’s leading experts on fiscal policy told attendees of Monday’s fourth Seminars at Steamboat talk that the state of the U.S. fiscally is “really, really bad.”
Maya MacGuineas said every red light warning sign is currently blinking, as the cost of interest on the national debt is now the country’s fastest growing expense, and it’s dampening growth.
“The picture is bleak. There is nothing encouraging about the fiscal path of our country. There is nothing sustainable about it,” MacGuineas said. “If your debt is growing faster than your economy, that is a signal that you have a problem, and that is the situation where we are.”
MacGuineas said fiscal responsibility means there is a need to balance the budget every year.
“So often, we are borrowing not for economic reasons but for political reasons, because it is the expedient, easy thing to do,” MacGuineas said. “We are, therefore, just raking up trillions and trillions in debt because it’s too difficult to go through the most basic principal budgeting.”
This is fueled by partisanship, MacGuineas said, and it is the biggest impediment to solving some of the nation’s fiscal issues.
MacGuineas is president of the bipartisan Committee for a Responsible Federal Budget and a self-described “die-hard political independent.” The group works to engage the public and legislators about the federal budget, and MacGuineas said one of the group’s strengths is that it’s trusted as a bipartisan organization.
She said the country’s debt is just above 100% of the total gross domestic product, which is a measure of all goods and services produced in the country. Historically, this number has been closer to 40% of GDP. The country is quickly approaching the historical record of 106% of GDP, which came right after World War II.
“The problem is not just where we are at near record levels, it is where we are heading,” MacGuineas said. “If we do nothing else, right now built into our budget, we are on track to borrow another $12 of $13 trillion over the next decade.”
There is no magic number of how much debt is too much, MacGuineas said, but the higher it climbs, the more likely it becomes that some sort of limit may present itself.
Another issue over the next decade, MacGuineas said, is there are four trust funds the government operates that are headed for expiration: Social Security Retirement, Social Security Disability, the Highway Trust Fund and Medicare Part A.
“These programs have made huge promises that they will pay for where the money to pay for them does not exist,” MacGuineas said.
The federal budget spends about $6 on every senior citizen for every $1 it spends on children, MacGuineas said, which is a sign the country has been under-investing in human capital. She said this under-investment could be dangerous for the long-term health of the country.
“If you don’t fix Social Security, there is an automatic 23% across the board benefit cut,” MacGuineas said. “Instead of Congress knowing that there is a problem, knowing they need to fix it, hashing out the differences, they continue to ignore it every year, and that has been going on for decades.”
Even though interest rates are historically low, MacGuineas said borrowing is crowding out public investment, which dampens growth. MacGuineas said this is likely already slowing the growth of the economy, wage growth and standard of living.
This is because about 40% of the nation’s debt comes from foreign countries — the largest lenders being China and Japan — and interest payments are leaving the U.S. economy.
Citizens should care because when emergencies come, like a global pandemic, countries do need to borrow money. MacGuineas said she wasn’t upset the country has been borrowing; rather, she was thrilled it was able to.
The other problem with high debt that MacGuineas sees is that it restricts government’s ability to think big and tackle big reforms, like overhauling the social contract.
“A huge bulk, about 50%, of our spending is focused on retirement and health care,” MacGuineas said. “Those are not the huge challenges of the century we are in, those are the challenges of the last century.”
MacGuineas said the country needs to be thinking about how to work in a dynamic global economy, where industries are disappearing, technology is displacing workers, and wage growth is not longer guaranteed.
That said, MacGuineas said she is encouraged that the current agenda looks to move toward investment. What will be important is that these investments are paid for rather than just adding to the debt.
Much of the problem is partisanship that tends to focus on one-upping the other party rather than focusing on the policy. Social Security, for example, is more useful as a political tool to club the other party with than as a problem to solve.
MacGuineas said policy, a long-term focus, making hard choices and compromise are the things that could fix the situation, but they are the things that are lacking.
“Our division, our distrust and our dysfunction are making it harder and harder to figure out how we can get back to that place,” MacGuineas said.
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