As Congress approaches yet another government funding deadline, the U.S. government is still spending taxpayer dollars at Obama-era levels since lawmakers continue to kick the fiscal can down the road in perpetuity, and one leading economist says that inaction is triggering the return of trillion-dollar deficits that future generations will have to pay.
Vance Ginn is senior economist at the Texas Public Policy Foundation, where he also directs the foundation’s Center for American Prosperity. Ginn also shared his insights on recent stock market volatility and what it means for the nation’s overall economic health.
On Feb. 8, the short-term continuing resolution approved last month will expire, triggering another partial government shutdown unless another funding bill is approved. Right now, Democrats and President Trump are drawing competing lines in the sand over immigration policy.
As a result, no one is advocating actual changes in spending for the various department and obligations of the government. In essence, the U.S. is still operating at Obama-era spending levels more than a year into the Trump administration.
Congress and Trump have repeatedly avoided dealing with the issue by passing and signing continuing resolutions in April, September, December, and January. And there is no indication the next bill will be any different.
“What it seems like they’re doing is trying the same thing over and over again and expecting a different result. That’s the definition of insanity and that’s what we continue to have in D.C,” said Ginn.
“Congress hasn’t taken the opportunity here – and the multiple congresses before this – to restrain the growth of spending over time,” said Ginn, and he says political considerations are behind the failure to rein in spending.
And while Democrats are doing their best to gum up Republican efforts to trim the federal budget, Ginn says the bottom line is Republicans know cutting spending comes with political consequences, so they’re reluctant to do it.
“When you’re looking at the next election cycle, you want to get re-elected. So it makes it very difficult to make those tough choices to cut spending for interest groups that are there often with their hands out,” said Ginn.
Recently, Treasury Department officials announced deficits for Fiscal Year 2018 could approach $1 trillion. Most reaction has been quick to blame the recently approved tax cuts. Ginn says that is one factor but not the primary factor.
“The driver of deficits and debt is spending. We don’t have a revenue problem. We have a spending problem. We’ve got to get the spending under control as quickly as possible. This would be a great opportunity to do that,” said Ginn.
And he says deficits will continue to bury us until the big ticket items are dealt with.
“The president has put out some good ideas like rolling back some of the funds going to the EPA and some other areas, but we really have to have congressional action. This isn’t just going to take cuts to spending. At some point, it’s going to have to be reforms to entitlement programs to really bend the cost curve so we don’t have massive deficits and debt year after year after year,” said Ginn.
Ginn says every year that lawmakers dither on spending adds another pile to the bill facing our children and grandchildren.
“That means future generations are going to have to pay more in taxes. Currently the national debt is around $21 trillion. (This years projected deficit) would push it up to $22 trillion or $23 trillion. If you add in unfunded liabilities for Social Security and Medicare, we’re over $100 trillion in debt,” said Ginn.
Ginn says some states are modeling fiscal responsibility and that Congress could take a lesson from his state of Texas.
“When you look at the Texas model of low taxes, relatively less government spending and sensible regulation, what we’ve been able to do in Texas is pass conservative budgets that don’t increase by more than population growth plus inflation. Actually it’s been less than that.
“It would be great to see the day where Congress can do that. And that would help it to live within taxpayers’ means over time,” said Ginn.
Meanwhile, the past several days on Wall Street have investors reaching for the antacid. Before Tuesday’s gains, the markets saw the biggest losing streak in about two years. Ginn says the negative numbers approached the range of a typical correction, but figuring out why takes some work.
“Eighty percent of businesses have come in above expectations for earnings in the fourth quarter, so you would expect greater increases in the stock market as well. But there’s also anticipation of faster economic growth and higher inflation, and some of those things are starting to contribute to an increase in interest rates, which slows economic growth and reduces the money supply in circulation,” said Ginn.
But with the Federal Reserve edging interest rates up recently, why is inflation becoming a problem? Ginn sees two reasons.
“Part of that is from the economic growth potential from the tax cuts that were passed and people are already starting to see an increase in their pay. As they see an increase in pay, they like to spend more and that increases demand. Without the increase in supply – which I think we will see from increased production from businesses – that would increase inflation,” said Ginn.
But there’s another, very different reason inflation concerns are mounting.
“The Federal Reserve has increased the money supply quite dramatically over the last decade, from quantitative easing and everything else. So you’re seeing inflationary pressures from that monetary factor as well,” said Ginn.
The bottom line though, says Ginn, is that Americans should have confidence in the economy going forward.
“The fundamentals are strong. The last three quarters of last year averaged three percent growth. That’s the long-term growth rate of our economy over the last 100 years,” said Ginn, noting the number is significantly better than during the Obama years.