Saturday, October 05, 2013

There will be no government

In terms of debt and our feckless national media, you could do worse than this paragraph from Niall Ferguson in the WSJ: "The shutdown is a sideshow."
Yet, entertaining as all this political drama may seem, the theater itself is indeed burning. For the fiscal position of the federal government is in fact much worse today than is commonly realized. As anyone can see who reads the most recent long-term budget outlook—published last month by the Congressional Budget Office, and almost entirely ignored by the media—the question is not if the United States will default but when and on which of its rapidly spiraling liabilities.
"Long-term economics is boring!" whines the media.  "Call us when we hit the iceberg."
True, the federal deficit has fallen to about 4% of GDP this year from its 10% peak in 2009. The bad news is that, even as discretionary expenditure has been slashed, spending on entitlements has continued to rise—and will rise inexorably in the coming years, driving the deficit back up above 6% by 2038.
President Says Stuff like to point out that discretionary spending is hitting new lows - which is true - but this is only because mandatory spending is crowding out the federal budget and we're still running huge deficits.  Should we reform entitlements to preserve some spending on schools and aircraft carriers?  Heavens, no.
A very striking feature of the latest CBO report is how much worse it is than last year's. A year ago, the CBO's extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year's long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year.
Don't worry: thanks to the partial government shutdown, President Says Stuff has recharged his blame-shifting game.  Down, down, down we go.

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