The chatter today has been all about Lawrence Lindsey’s WSJ column about our dire fiscal situation. Excuse me — the meaningful chatter. The meaningless chatter has been about Michele Bachmann, and whether she’s the Gaffe-O-Matic or merely gaffetastic. After watching her embarrassing campaign launch yesterday, I can’t say I much care. Honestly, it was the worst GOP presidential announcement since the last one. Bachmann and Jon Huntsman might turn out to be the Dueling Flame-outs, bookending the left and right of the party.
But I digress, and we have serious business to cover. What Lindsey says about our spending problem comes down to: We are so screwed.
Some facts and figures for you:
The president’s budget of February 2011 projects economic growth of 4% in 2012, 4.5% in 2013, and 4.2% in 2014. That budget also estimates that the 10-year budget cost of missing the growth estimate by just one point for one year is $750 billion. So, if we just grow at trend those three years, we will miss the president’s forecast by a cumulative 5.2 percentage points and—using the numbers provided in his budget—incur additional debt of $4 trillion. That is the equivalent of all of the 10-year savings in Congressman Paul Ryan’s budget, passed by the House in April, or in the Bowles-Simpson budget plan.
Here’s what I got out of that: If the Ryan or Bowles-Simpson budgets were to become law, our economy would quickly right itself — and the resulting increase in interest rates would eradicate all the savings.
Did you get that? Without seriously drastic cuts — cuts that would make Paul Ryan blanch — we can’t fix this economy without wrecking the government. Or maybe it’s the other way around.
Can we tax our way out? Back to Lindsey:
The tax-the-rich proposals of the Obama administration raise about $700 billion, less than a fifth of the budgetary consequences of the excess economic growth projected in their forecast. The whole $700 billion collected over 10 years would not even cover the difference in interest costs in any one year at the end of the decade between current rates and the average cost of Treasury borrowing over the last 20 years.
Clinton-era tax rates won’t even begin to cover the spending problem. Not even close.
That leaves us with three possible outs: Cut the budget to the bone, hyperinflate away our debts, or default.