The Congressional Budget Office today issued a report, “CBO’s 2011 Long-Term Budget Outlook.” The report notes the disastrous level of federal debt:
At the end of 2008, that debt equaled 40 percent of the nation’s annual economic output (a little above the 40-year average of 37 percent). Since then, the figure has shot upward: By the end of this year, the Congressional Budget Office (CBO) projects, federal debt will reach roughly 70 per-cent of gross domestic product (GDP)—the highest percentage since shortly after World War II.”
The report continues:
“As the economy continues to recover and the policies adopted to counteract the recession phase out, budget deficits will probably decline markedly in the next few years. But the budget outlook, for both the coming decade and beyond, is daunting.”
The CBO disclaims making any recommendation, “[i]n keeping with [its] mandate to provide objective, impartial analysis.” In spite of this, however, and despite the acute condition of the federal budget, the CBO implicitly recommends short-term inaction, cautioning that “raising revenues or curbing spending immediately would probably slow the economic expansion.”
The report is correct that raising taxes is a bad idea. It is wrong, though, in its assumption that cutting spending would be harmful. Federal spending requires taking money from taxpayers, who lose the ability to spend, save, and invest their own funds. This creates an opportunity cost: voluntary private economic activity is foregone for involuntary, political spending, most of which is both wasteful and counter-productive.
Does the CBO actually believe that ending the spending for, e.g., the wars, the military empire, the drug war, corporate welfare, foreign aid, and most regulatory agencies would be detrimental? Does it actually think that allowing people to retain more of their own money would be a threat to the economy?
Further, where is the “economic expansion” referred to in the report, and why should we expect a “recovery”? The Obama administration is doing everything possible to ensure a stagnant economy, through increasing spending, taxes, debt, and regulation, and regularly evoking hostility towards economic freedom. The Fed is contributing to the stagnation by preventing the necessary post-bubble deflation and bank failures.
The CBO may be “nonpartisan,” but it is part of the federal government, and reflects its myopia and bias. Failing to immediately cut spending (and taxes and regulation) will only prolong the economic stagnation and allow the federal debt to continue to grow.
