If you want to get a politician to change the subject, ask them how they're going to deal with the federal debt, which is growing to be bigger than the U.S. gross domestic product and has us on a path to fiscal disaster. Economists across the political spectrum agree that large, persistent, and growing annual deficits and the national debt depress long-term economic growth, the one known way to increase living standards.
When Reason asked GOP presidential candidate Vivek Ramaswamy what he would do to cut spending, he said he'd focus instead on supercharging the economy so that we can grow our way out of it. Unlike Joe Biden and Donald Trump—who have both sworn that they won't touch a penny of Social Security and Medicare, the major drivers of debt—the millennial and self-described limited-government conservative at least acknowledges that debt is a problem. He just won't commit to any spending cuts to deal with it.
"We've [had] more than 4-plus percent GDP growth for most of our national history," he says. "If we get back to…three-point-something, actually, most of those fiscal problems are completely gone."
But that's not right. According to quarterly data from the Bureau of Economic Analysis, we calculate that annual GDP growth has averaged 2.7 percent since 1970, helped along by a rapidly growing labor force thanks to immigration, the baby boom, and women going to work. Let's say Ramaswamy gets elected for two terms and unleashes economic growth that pushes the U.S. economy up to 4 percent GDP growth through 2033. Would most of our fiscal problems be "completely gone"? Not even close.
According to our calculations, the CBO projects that GDP will grow by 2 percent per year over the eight years of the next two presidential terms. Even if you double that to 4 percent annual growth—a rate more than double what it's been so far in the 21st century—we'll still be swimming in a sea of red ink.
In a recent report, CBO estimated that for every 1.2 percentage points that GDP exceeds its projected level for 2033, the deficit would be $51 billion smaller in that year. By that measure, if GDP growth ran 4 percent instead of 2 percent over those eight years, the projected deficit in 2033 of $1.4 trillion would be cut roughly in half, to $700 billion.
In other words, the government would still be running deficits every year, and the federal debt would keep growing.
These guys want to steer clear of the third rail of American politics—Social Security and Medicare entitlements that already comprise 30 percent of annual spending—and will jack up to about 40 percent over the next decade. But we have to make them grab it fully with both hands.
If we don't start seriously cutting spending and scaling back eldercare entitlements, we're not going to balance the budget or stop growing the debt.
And our economy is headed for disaster.
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