|
Affordability may be the defining word of 2026. After years of elevated inflation, a housing affordability crisis, and signs of softness in the labor market, many Americans are feeling squeezed—and looking for answers. You can expect this issue to loom large at the polls in November. That’s why state and federal lawmakers should confront one of the central drivers of this “unaffordable” economy: fiscal irresponsibility. Persistent overspending helps fuel inflation and adds uncertainty that holds back growth. It’s time to get serious about sustainable budgeting and pro-growth policies that expand opportunity—so Americans can find well-paid jobs, secure affordable housing, and afford daily life again.
In today’s This Week’s Economy, I take an honest look at the latest economic data—even where it challenges media narratives. We’ll also examine the risks of a rising push for social media bans and why energy abundance is essential to powering our technological future. Let’s dive in! Catch the full episode on YouTube, Apple Podcast, or Spotify, and visit my website for more information.
0 Comments
 Originally published at American Institute for Economic Research.
Friday’s rejection of the continuing resolution (CR) in the US House underscores Congress’s glaring dysfunction. This bill wasn’t just bad — it was emblematic of a systemic failure to restrain federal spending. The proposed measure continued unsustainable spending levels and piled on additional increases without the spending cuts necessary to offset its fiscal recklessness. The House vote failed 174-235, a stunning defeat for President-elect Donald Trump and Speaker Mike Johnson. This chaotic episode highlighted deep divisions within Congress, with Democrats refusing to accommodate Trump’s sudden demands and many Republicans expressing frustration over internal disarray. Congressman Chip Roy (R-TX) aptly called out his fellow lawmakers, stating, “I am absolutely sickened by a party that campaigns on fiscal responsibility and has the temerity to go forward to the American people and say you think this is fiscally responsible. It is absolutely ridiculous.” He’s right. For years, Congress has operated with bipartisan disregard for fiscal restraint, perpetuating a cycle of overspending that jeopardizes America’s economic future. Outrageous Spending Items in the CR The latest CR is packed with bloated spending measures that reveal Congress’s skewed priorities and increase spending by trillions of dollars over the next decade:
Families Live Within Their Means. Why Can’t Congress? American families know what it’s like to live within a budget. Most work hard to stay within their credit limits, ensuring they don’t jeopardize their financial futures. Politicians, however, seem to have no such discipline. They spend other people’s money recklessly, ignoring the long-term consequences. Adding insult to injury, the CR would have extended the debt ceiling for two years — until after the midterm elections — removing a check on runaway federal borrowing. This two-year extension, supported even by President-elect Donald Trump, was a slap in the face to those advocating for fiscal discipline. Rep. Roy and others in the House Freedom Caucus are right to demand structural reforms to spending before agreeing to any increase in the debt ceiling. Without such reforms, we’re simply enabling the same destructive cycle. A Nation on the Brink The United States is teetering on the edge of major fiscal, monetary, and economic crises. Federal debt exceeds $36 trillion, inflation remains a persistent threat, and rising interest rates are squeezing household budgets and business investments. More government spending — as proposed in this CR — will only exacerbate these problems. Americans care about their income, prosperity, and financial security — not the page count of a bill. Excessive government spending undermines all three. It fuels inflation, weakens the dollar, and leaves future generations saddled with debt. We need sustainable budgets that cut spending today and limit future growth to no more than the combined rate of population growth and inflation. This approach would help stabilize the economy while reducing the burden on taxpayers. Shutdowns Aren’t the Problem; Overspending Is Critics often use the threat of a government shutdown to push through irresponsible spending bills. But let’s be clear: politicians have already shut down schools, economies, and entire communities in recent years. A temporary federal government shutdown, by contrast, might be the best thing to happen right now. It would force a much-needed reckoning with the root of our problems: Congress’s addiction to deficit spending. A shutdown would allow the American people and their representatives to step back and address the elephant in the room: spending. It’s an opportunity to demand real solutions, not half-measures or hollow promises. For a resilient, pro-growth economy, prioritize structural reforms like spending caps and deregulation. Looking Ahead: A New Era of Fiscal Restraint? There are signs of hope. The incoming administration has signaled more fiscal restraint and deregulation, which is questionable given the CR efforts. With Musk and Vivek Ramaswamy leading the Department of Government Efficiency (DOGE) efforts, there’s potential for meaningful change. But actions speak louder than words, and this CR’s failure is a stark reminder that reform won’t be easy. The next year will bring multiple fiscal cliffs, including debates over the debt ceiling, expiring Tax Cuts and Jobs Act provisions, and new spending bills. Policymakers must seize these moments to enact lasting reforms. That means standing firm against the pressures of Washington’s spending culture and prioritizing the long-term prosperity of the American people over short-term political gains. Conclusion: A Call to Action Rep. Roy’s critique of the CR highlights a broader truth: the federal government is failing its citizens. It’s time for lawmakers to stop negotiating with themselves and start delivering on their promises of fiscal responsibility. This means rejecting bad bills, demanding meaningful spending cuts, and embracing sustainable budgeting practices. Balanced budgets are achievable—with faster economic growth and significant spending restraint. By implementing meaningful reforms today, we can create opportunities for prosperity tomorrow. The stakes couldn’t be higher. The time for excuses is over. Despite cooling inflation, consumer sentiment is still low as its impact continues to weigh on households.
Vance Ginn, president of Ginn Economic Consulting and former chief economist of the Office of Management and Budget, spoke to NTD about the future of the American economy in the next four years. Here's the post by NTD News: https://www.ntd.com/congress-must-act-to-cut-government-spending-economist_1034926.html Let Americans Prosper Project: Ensuring Fiscal Sustainability for America's Future (Updated)11/1/2024  Introduction The U.S. stands at a critical crossroads, burdened with a mounting national debt from excessive government spending. This fiscal crisis threatens economic stability and future prosperity. While various fiscal reform proposals have been floated over the decades, the most recent pro-growth plan was former U.S. House Speaker Paul Ryan's FY 2012 budget. It avoided raising taxes and focused on reducing the deficit, reforming “entitlement” programs, and fostering economic growth. Today, these pillars have renewed significance and should be prioritized over any attempts to raise taxes. The Let Americans Prosper Project is vital, advocating for pro-growth policies such as tax and regulatory reforms, spending restraint, block grants to states, and work requirements for safety net programs so that America can achieve fiscal sanity before it is too late. The economic literature shows that raising taxes reduces economic activity while spending restraint promotes growth. The Congressional Budget Office (CBO) projects the U.S. federal government's gross debt to reach $34.8 trillion in FY 2024, with unfunded liabilities exceeding $100 trillion. Federal outlays are 23% of GDP and are expected to rise to 28% by 2054. Historical data indicates that reducing spending and promoting growth can decrease debt Successful reforms in the late 1990s and early 2000s included slowing spending growth and promoting economic expansion. About 70% of the federal budget comprises mandatory outlays, which are challenging to reform due to political risks. However, significant reforms are possible, as evidenced by past Medicaid and welfare reforms. Robust economic growth is crucial for a sustainable fiscal future. Lowering taxes and implementing pro-growth policies can stimulate economic activity and increase government revenues. Historical examples include the Reagan tax cuts and the 2017 Trump tax cuts, which led to significant economic growth. Adopting strict spending limits, similar to the Swiss debt brake or Colorado’s TABOR, can stabilize debt levels. A fiscal rule capping federal spending at the rate of population growth plus inflation could have significantly reduced the federal debt over the past two decades. Transitioning Medicaid and other welfare programs to block grants with work requirements can improve efficiency and reduce costs. This approach was successful in the welfare reforms of the 1990s, leading to decreased dependency and poverty rates. Introducing market forces and personal responsibility into programs like Medicare and Social Security can address the unsustainability of mandatory spending. Advocating for limited government and economic freedom can drive prosperity and fiscal sustainability. The Let Americans Prosper Project outlines a bold fiscal reform approach focused on lower spending, lower taxes, and reduced taxpayer burden to foster economic growth and ensure fiscal sustainability. Disciplined fiscal management and economic freedom are essential to securing America’s financial future. Spending Crisis Leads to Massive National Debt The economic literature has clearly shown that there are better ways to reduce deficits than raising taxes because it disincentivizes work and productivity, thereby reducing economic activity and lowering tax collections. Instead, cutting or slowing government spending has a better track record and can be pro-growth as it reduces government distortions to economic activity. Renowned economists Alberto Alesina, Casey Mulligan, John B. Taylor, and others, including my work on the Sustainable Budget Project with Americans for Tax Reform, have found spending restraint is the best path forward. The recent Congressional Budget Office (CBO) budget and economic outlook show the U.S. federal government’s gross debt will likely reach $35 trillion in FY 2024. But it gets worse: American taxpayers face unfunded liabilities—the net present value of spending commitments above expected revenues for programs such as Medicare and Social Security—of more than $100 trillion. The U.S. debt was 119.8% of the Gross Domestic Product (GDP) following World War II. Today, the debt is about 125% of GDP and is projected to climb to 257% by 2043. Federal debt held by the public is about 100% of GDP in FY 2024 and is expected to be 116% by 2034. Excessive spending leads to these unsustainable rising costs. Federal outlays are 23% of GDP but are expected to increase to at least 28% by 2054. Net interest payments of more than $1 trillion on the national debt are 16% percent of the total budget, the highest share since 2001, and will continue to climb. These net interest payments are about 3.7% of GDP, the highest share since 1999, and will likely increase to 6.2% in 20 years. Other nations have inflated away their debt or defaulted on it. That has yet to work well. After the debt rose to 119.8% of the economy in 1946, it was down to 31% of GDP by 1981, even though the budget was only balanced or in surplus for 8 of those 35 years. This was achieved through more economic growth and less spending. Past Budget Reform Effort Successes and Failures In the last three years of the Clinton administration, the federal budget was in surplus, along with the first year of the Bush, Jr. administration. However, the gross federal debt continued to increase as they exchanged debt with different maturities. The public's debt decreased by about $430 billion from 1998 to 2000 and $128 billion in 2001. President Clinton and the Democrat Congress had plans to spend every dollar of the 1993 tax hike plus $200 billion, the amount they felt was politically acceptable. Reagan had run such deficits. When Republicans captured the House and Senate in 1994, they refused to spend as Clinton wanted because of the work of Speaker Newt Gingrich and others. The capital gains tax was cut in 1997 from 28% to 20%, and the economy was spurred. Slower spending and more growth gave America four years of surpluses. Can we increase the economy's growth rate and slow the growth rate of federal spending again? We must! About 70% of the federal budget comprises mandatory outlays, such as Social Security, Medicaid, Medicare, Veterans benefits, national defense, and other expenditures. These are considered on automatic pilot because politicians don’t want to make necessary changes to these and risk upsetting voters, thereby not winning reelection. Unlike in the late 1990s, we cannot significantly cut spending by reducing domestic discretionary and military spending. The Clinton-Gingrich surpluses were largely made possible by the collapse of the Soviet Union and a decline in military spending from 5% to 4% of GDP, as well as by reforming safety net programs, which included beneficial work requirements for safety-net recipients. In the Obama years, the U.S. House voted to block grant programs such as welfare, food stamps, and federal housing programs to the states and capped their outlay growth. This is what Republicans did during the Clinton years for Medicaid and traditional welfare, Aid to Families with Dependent Children, now known as Temporary Assistance to Needy Families (TANF). Clinton refused to block grant Medicaid, but after vetoing welfare reform—block granting it to the states—he was reportedly told he had to choose whether to sign the welfare reform bill or lose the 1996 presidential election. He signed it. Welfare spending fell substantially, by as much as 30%, in most states after that as people went to work and provided for their families. Also during the Obama years, the Budget Committee Chairman and then-Republican House Speaker Paul Ryan led the House of Representatives to pass a budget called The Path to Prosperity: Restoring America’s Promise that block-granted most means-tested welfare programs and capped their spending growth. Those reforms covered Medicaid and welfare programs but not Social Security and Medicare. The Senate passed such a budget once. But Obama would not sign such reforms. Ryan showed a better approach than the fiscal insanity today. He also showed that such a budget could be passed in the House multiple times and that Republicans could keep control of the House and Senate. Such reforms to mandatory programs focused on means-tested programs—not the ones people believe they have paid for (Social Security and Medicare)–without political backlash. More recently, in 2017, Republicans passed a related Medicaid reform through the House and came within Senator John McCain’s one-nay vote to pass such a reform that Trump had agreed to sign. Even a narrow majority of Republicans in the House and Senate with a Republican president could enact significant reform. This could include block-granting welfare programs to the states and removing federal mandates so states could experiment with different ways to keep costs down, which is paramount in our system of federalism. At the state level, several states are moving their government pensions from the traditional union-style defined-benefit system that runs up unfunded liabilities to defined-contribution plans—40lK-style—that do not create unfunded liabilities. As they grow in number and size–and in the private sector, most pensions are already 401K-style defined-contribution plans–the willingness of Americans to shift Social Security and Medicare to similar structures will grow. The idea first floated by Bush, Jr. remained popular with younger voters even as the Democrats refused to consider the reform in the 2000s. Chile shifted its social security system to an opt-in program like an IRA. Ninety percent chose to leave the traditional program, and the government option was eventually phased out. Since then, more than 30 other countries have privatized or partially privatized their retirement programs. Britain has a hybrid system similar to some U.S. state pensions. Over time, the unfunded liabilities reduce to zero under this approach, and total spending bends down the cost curve. Simply beginning the block granting of means-tested programs and later starting the longer phase-in to fully funded, individually controlled 401 K-style Social Security and Medicare would clarify that the U.S. was headed toward fiscal sustainability by reducing pressure on the budget and the economy. Economic Growth: The Key to Prosperity A robust economy is the bedrock of a sustainable fiscal future. By implementing pro-growth policies, we can bolster economic stability and create an environment that fosters job creation and wealth generation, ensuring a prosperous future for all. The Impact of Tax Policy on Growth We had strong economic growth after the Reagan tax cuts. This broad-based tax cut reduced the top individual tax rate from 70% to 50% in 1981 and then to 28% in 1986, which lasted until Bush, Sr. raised taxes. The capital gains tax reduction in 1978, 1981, 1997, and 2001 contributed to higher economic growth rates. More recently, the Trump tax cuts of 2017 cut the corporate income tax rate from 35%, the highest in the developed world, to 21%, making it near the European average. Over time, the entire Trump tax cuts and deregulation contributed to an inflation-adjusted median household income increase of 8.5% from 2017 to 2019. Lower individual tax rates and capital gains taxes (Coolidge, JFK, Reagan, Bush, Jr., and Trump) and the corporate tax rate in 2017 contributed to faster economic growth rates in the past and will again. Less spending and more economic growth are good ideas but are now required by the growing debt from years of uncontrolled spending and underperforming economic growth. The Role of Pro-Growth Policies in Reducing the Deficit To achieve long-term fiscal sustainability, it is essential to implement pro-growth policies that stimulate economic activity and increase government revenues without raising tax rates. Lowering taxes can increase incentives to work and invest, supporting higher economic growth and increasing tax revenues. This is the "Laffer Curve" effect, where reducing tax rates can sometimes increase total tax revenue by boosting economic activity. Regulatory relief can lower the cost of compliance for businesses, encouraging them to invest and expand. This increased investment increases productivity, job creation, and economic growth. By making the Trump tax cuts permanent, finding other tax reforms and relief to support more growth, and reducing regulations that inhibit economic growth, there is ample opportunity to support faster economic growth and increased tax revenues. The CBO expects total outlays to be $6.4 trillion in FY 2024, $6.8 trillion in FY 2025, and $10.1 trillion in FY 2034. This is not sustainable because total revenue is expected to be $4.9 trillion in FY 2024, $5.0 trillion in FY 2025, and $7.5 trillion in FY 2034. Figure 1 shows this under these caps, which would function like a strict fiscal rule for the entire budget and projected total revenue if there was a sustained 1-percentage point higher real GDP over the decade due to more pro-growth economic policy. The spending caps are explained further below.  Table 1 shows the results of the CBO’s projection of the total for mandatory outlays and our estimates for each growth cap scenario for the upcoming 10-year window.  Faster economic growth could come with such tax reforms as a simplified, broad-based, flat-income tax system. Based on the data from the President’s latest budget estimates (see Table 2-4) of a sustained one percentage point higher real GDP over the 10-year window, there could be nearly $3.5 trillion more in tax revenue. The result would be that the federal government would nearly balance in 2031 with a 1% growth limit on spending or by nearly 2034 with a spending limit of inflation. A spending limit of the rate of population growth plus inflation would still run a deficit after a decade but would balance shortly after that. Total Deficit These sustainable budget approaches work well to support more economic growth and reduce spending growth over time. However, these will likely create tough political challenges, though they should be considered rather than raising taxes. Of course, these budget improvements would be even more significant if there were pro-growth policies of less spending, lower taxes, reduced regulation, expanded free trade, and other efforts that limit government intervention in our lives and livelihoods. Given the above calculations, we can evaluate, based on our approaches, what could happen to the deficit over time. Figure 2 shows what this looks like under these caps.  Table 2 shows the results of the CBO’s projection of the total for the total deficit and our estimates for each growth cap scenario for the upcoming 10-year window.  Overall, the only approach to a balanced budget by 2034 is the 1% growth cap, but faster economic growth would help the other two spending restraint approaches reach a balanced budget in about a decade. All three spending restraint approaches would improve the budget picture substantially compared with the CBO’s baseline budget. Also, we have kept the CBO’s projections for tax revenues or used the President’s latest estimates with faster economic growth, so our approach is very conservative. The results would most likely be substantially higher tax revenues by limiting government spending in the productive private sector and not hurting economic activity by raising taxes, as noted above, but rather providing pro-growth tax reform. Fiscal Reform Initiatives and Their Outcomes Various fiscal reform initiatives have been proposed and implemented over the years, with varying degrees of success. The most effective have combined spending restraint with pro-growth economic policies. Sustainable Budgeting Practices Adopting sustainable budgeting practices involves setting strict limits on spending growth and focusing on essential services. This approach helps to stabilize debt levels and create a more predictable fiscal environment. The federal government's enactment of a sustainable budget would assist these reforms. This would be a fiscal rule of spending limit similar to the Swiss debt brake or Colorado’s TABOR, whereby federal spending would be capped at no more than the rate of population growth plus inflation. Of course, federal spending should be much lower than this rate to correct for past excesses and bloated national debt. However, the spending limit will force Congress to reform mandatory programs and reduce the national debt. Had this spending limit been in place from 2004 to 2023, the federal debt would have increased by $700 billion instead of the actual increase of $20.2 trillion (Figure 3).  A cornerstone of our approach is establishing a strict federal spending limit, block-granting federal safety net programs, and mandating work requirements for recipients to receive taxpayer funds. This approach underscored the need for disciplined fiscal policy to curb the government's excessive spending tendency. By setting a clear ceiling on expenditures, our proposal sought to ensure that federal spending grows at a rate that does not exceed the taxpayers’ ability to fund it, thereby addressing the root cause of the burgeoning national debt. The key pillars of our project are block grants and work requirements for safety net programs tied with spending restraint and other pro-growth policies. Block Grants and Work Requirements One successful reform has been the implementation of block grants for welfare programs, coupled with work requirements. This approach was central to the welfare reform of the 1990s, which led to significant decreases in welfare dependency and poverty rates. Medicaid, a significant component of the federal safety net, has been a focal point of fiscal scrutiny due to its rapidly expanding costs. As a joint federal-state program, Medicaid's current open-ended funding structure incentivizes higher spending, contributing to its unsustainable trajectory. We propose a transformative reform of Medicaid by transitioning it to a block grant program. This approach would allocate fixed amounts of funding to states, granting them greater autonomy over the administration of Medicaid. This decentralization is intended to spur innovation and efficiency as states tailor the program better to fit the needs and circumstances of their populations. Crucially, this block grant proposal includes stringent limitations on funding growth. These limitations ensure that Medicaid spending does not outpace the broader economy or the government's fiscal capacity. By imposing these constraints, the plan aims to make Medicaid more sustainable long-term, aligning its growth with realistic fiscal parameters and reinforcing the broader goal of government restraint. Advancing Fiscal Responsibility: The Broader Implications While Medicaid reform was a critical aspect of Ryan's fiscal strategy, it should be extended to a comprehensive overhaul of mandatory programs. By advocating for reforms that introduce more market forces and personal responsibility into programs like Medicare and Social Security, we could address the unsustainability of mandatory spending. These reforms are grounded in the principle that fiscal responsibility necessitates hard choices and innovative solutions to preserve the social safety net for future generations. At the heart of our proposal is a call for limited government. This means reducing the size and scope of federal programs and emphasizing the importance of unleashing the private sector's potential. By advocating for tax and regulatory reforms that encourage investment and job creation, our proposal reflects a belief in the power of economic freedom to drive prosperity. Results from the Let Americans Prosper Project Many areas of the federal budget need to be reformed or eliminated, as many are questionable under the Constitution. But without eliminating those areas right away, unless there is political will, the Sustainable American Budget approach block grants many of the programs that currently go to states and cap the growth rate of those to different rates. These growth rate caps include 1%, inflation rate, or the rate of population growth plus inflation. The inflation measure used is the chained-consumer price index, which accounts for substitution effects and has been the index used to adjust federal income tax brackets since the Trump tax cuts. Our analysis uses the average growth rates from the last decade of 2.59% for chained CPI and 3.12% for population growth plus inflation. We consider different areas of the budget for the latest CBO projections for tax revenues and spending from 2025 to 2034. These projections from the CBO need to be more precise as they do not account for unforeseen recessions or other complications. Our projections do not account for the likelihood of faster economic growth from our pro-growth policy changes. Regardless, our projections provide helpful estimates when considering the best path forward to deal with the fiscal and economic crisis. Table 3 provides the CBO’s 10-year window estimates for the federal budget.  These data indicate that mandatory spending on things like Medicare and Social Security will account for 61.7% of the total outlays over the next decade, with discretionary spending comprising 23.2% and net interest of 15.0%. This provides further evidence that something must be done about mandatory programs before there is fiscal relief. Given this unsustainable trajectory, we consider the following scenarios for specific areas of the budget and others for comparison to help right the ship that is ready to crash if it has not already. Medicaid Spending We start by block-granting Medicaid expenditures to states. Medicaid has many problems, as recently outlined by the American Legislative Exchange Council, and those states that haven’t expanded Medicaid should not. In short, coverage doesn’t equal care, especially when it is covered by the government and paid for by taxpayers. Regardless, we consider what Medicaid could spend over the next decade if it was block-granted to states and then limited to the growth rate caps noted above. Figure 4 shows what this looks like under these caps.  Table 4 shows the results of CBO’s projection of Medicaid spending and our estimates for each growth cap scenario for the upcoming 10-year window from 2025 to 2034.  Medicaid and Income Security Programs Spending Expanding the block grant approach beyond Medicaid, we should include income security programs such as the Supplemental Nutrition Assistance Program (SNAP), earned income, child and other tax credits, supplemental security income, unemployment compensation, child nutrition, and family support, including housing vouchers and foster care. Consolidating these programs into block grants to states can significantly improve efficiency and accountability. States, being closer to the needs of their populations, are better positioned to administer these programs effectively, ensuring that aid reaches those who need it most while minimizing waste and fraud. Figure 5 shows what this looks like under these caps.  Table 5 shows the results of the CBO’s projection of the total for Medicaid and income security program spending and our estimates for each growth cap scenario for the upcoming 10-year window.  Because the CBO projects that spending on income security programs will decline in 2026 and 2027 and then increase again, its average growth rate is 1.1%. Hence, the primary savings from our approach is on Medicaid spending. Discretionary Spending Capping Medicaid and other safety net programs will help provide some fiscal relief but not much over time. We also consider our approach with discretionary spending, which is expected to be $1.7 trillion or about 27% of $6.4 trillion in total outlays in FY 2024. Figure 6 shows what this looks like under these caps.  Table 6 shows the results of the CBO’s projection of the total for discretionary outlays and our estimates for each growth cap scenario for the upcoming 10-year window.  The only scenario that reduces discretionary outlays compared with the CBO’s baseline is the 1% growth approach. Of course, this is less than 30% of total outlays, so major cuts would be needed to improve the unsustainable fiscal trajectory. Mandatory Spending Capping discretionary spending alone will not solve the long-term fiscal problem. While we understand this will be politically challenging, evaluating what else must be done to provide a sustainable fiscal path is important. We consider our approach for mandatory outlays, which includes Social Security, Medicare, and other programs. The CBO expects mandatory outlays to be $3.8 trillion, or about 73% of $6.4 trillion in total outlays in FY 2024. Figure 7 shows what this looks like under these caps.  Table 7 shows the results of the CBO’s projection of the total for mandatory outlays and our estimates for each growth cap scenario for the upcoming 10-year window.  These sustainable budget approaches work well to reduce the long-term cost of mandatory outlays. However, these will likely create tough political challenges, though they should be considered rather than raising taxes. Social Security Regarding mandatory outlays, we consider our approach specifically for Social Security and Medicare. Figure 6 shows what spending on Social Security looks like under these caps.  Table 8 shows the results of the CBO’s projection of the total for Social Security and our estimates for each growth cap scenario for the upcoming 10-year window.  Medicare Regarding mandatory outlays, we consider our approach specifically for Social Security and Medicare. Figure 9 shows what spending on Social Security looks like under these caps.  Table 9 shows the results of the CBO’s projection of Medicare's total and our estimates for each growth cap scenario for the upcoming 10-year window.  Conclusion: Envisioning a Sustainable Fiscal Future The Let Americans Prosper Project provides a fiscal reform approach that boldly attempts to steer the U.S. from its unsustainable fiscal path. Government restraint, including a strict spending limit and targeted reforms like block-granting Medicaid and other safety net programs to states with work requirements, can provide a strong framework for achieving long-term fiscal sustainability. While requiring significant political will and public support, these measures underscore the imperative of disciplined fiscal management and the value of economic freedom in securing America's financial future with a sustainable budget. Vance Ginn, Ph.D., is president of Ginn Economic Consulting, host of the Let People Prosper Show, affiliated with more than 15 free-market national and state think tanks, and was previously the associate director for economic policy of the White House's Office of Management and Budget, 2019-20. Follow him on X.com at @VanceGinn.
Originally posted at American Enterprise Institute and by Kevin Kosar. Regular readers know that I am worried about the federal budget. The nation is $35 trillion in debt and neither party in Congress has a shown real interest in staunching the flood of red ink or fixing the 50-year old congressional budget process. America spends more on interest on the national debt than on national defense and Medicare.
Last month, former Rep. Tom Reed (R-NY) reminded us that the current budget process does not force Congress to consider revenue and spending issues in tandem when it is budgeting. So, unsurprisingly, elected officials are happy to enact tax cuts while increasing spending. This fiscal insanity cannot continue forever. Social Security benefits will be cut if Congress does not do something. And who knows, maybe financiers and foreign nations will decide they just do not want to keep purchasing so many U.S. government bonds, and a debt crisis will erupt. My chat with Dr. Vance Ginn, who worked at the Office of Management and Budget and hosts the Let People Prosper show and podcast, reminded me of two truths:
To date, neither party’s candidate for president shows any interest in leading on budget issues. In fact, each of them has proposed policy plans that would increase the deficit and debt, which is dispiriting. Pros and Cons of Using a Home Equity Line of Credit to Pay Off Your Mortgage: Interview on NTD News5/22/2024 With house prices surging recently, the average American homeowner now has around $300,000 of equity in their home. With the cost of living also soaring, many homeowners are considering taking out a home equity loan, or HELOC, to pay off their mortgage. But how exactly do such lines of credit work, and are they a good idea?
NTD’s Evelyn Li spoke with Vance Ginn, the former chief economist at the White House’s Office of Management and Budget and the president of Ginn Economic Consulting, to find out more. Interview on NTD News on May 22, 2024: https://www.ntd.com/pros-and-cons-of-using-a-home-equity-line-of-credit-to-pay-off-your-mortgage-economic-consultant_994520.html  Originally published at AIER.
Recently, the Biden administration handed $1.5 billion to the nation’s largest domestic semiconductor manufacturer, GlobalFoundries, the biggest payout from the CHIPS and Science Act of 2022 so far. The argument for this corporate welfare is America is too dependent on chips from China and Taiwan so more should be made domestically. Instead of seeing how America should reduce the cost of doing business for all semiconductor businesses here, some businesses will be picked as winners and others as losers. The cost of this form of socialism gives capitalism a bad rap and should be rejected. This move echoes a broader trend of governments worldwide intervening in their economies through industrial policy. A cocktail of targeted subsidies, tax breaks, and regulatory tinkering, industrial policy aims to sculpt economic outcomes by favoring specific industries or firms, all for the supposed benefit of the national economy. Industrial policy puts business “investment” decisions in the hands of government bureaucrats. What could go wrong? While its champions tout its potential to boost competitiveness and spur innovation, the reality often tells a different story, especially in light of massive deficit spending. In practice, industrial policy tends to fan the flames of higher prices and sow the seeds of economic destruction. Politicians too often meddle with voluntary market dynamics by artificially bolstering favored sectors through subsidies and tax perks, resulting in the misallocation of resources and distorted prices. Moreover, the infusion of government funds to bankroll these initiatives with borrowed money can contribute to the Federal Reserve helping finance the debt, increasing the money supply, and stoking inflation. The nexus between deficit spending and prices looms large over industrial policy. When politicians resort to deficit spending to bankroll industrial ventures, they put upward pressure on interest rates by issuing more debt and competing with scarce private funds. Elevated interest rates disturb private investment, ushering in a likely economic slowdown. Suppose deficit financing leans heavily on monetary expansion, whereby the central bank snaps up government debt. In that case, it fuels inflation by flooding the market with money that chases fewer goods and services. The national debt is above $34 trillion, and the Federal Reserve has already monetized much of the increase in recent years. Racking up even more deficits is insane: repeating the same mistakes and expecting a different result. Excessive spending and money printing have landed us with above-target inflation for over three years running. The repercussions of industrial policy ripple beyond inflation to encompass the broader economic landscape. Excessive government meddling in specific industries crowds out private investment and entrepreneurship. When particular firms enjoy subsidies and preferential treatment, it distorts the competitive landscape and deters innovation. This stifles economic vibrancy and impedes the rise of new industries or technologies crucial for sustained growth. For a cautionary tale of how Biden’s recent move could play out, look no further than Europe. Nations like Sweden, heralded by the West as a utopian example of big government yielding big benefits, spent the last year grappling with economic strife driven by dwindling private consumption and housing construction. Europe’s penchant for industrial policy, marked by subsidies, high taxes, and regulatory hoops, has contributed to its economic stagnation. To sidestep the dilemma of industrial policy missteps, policymakers should stop propping up their favorite sector or industry and instead unleash people to flourish by getting the government out of the way. Politicians should foster an environment conducive to entrepreneurship, innovation, and competition. This entails cutting government spending, reducing taxes, trimming red tape, and championing trade by removing barriers to private sector flourishing. By allowing market forces to determine resource allocation and rewarding entrepreneurship and risk-taking, people here and elsewhere can unleash their full potential and adapt to changing circumstances more effectively than under industrial policy frameworks. Biden’s billion-dollar amount to one company may seem like a lot, but that’s just a drop in the bucket of what’s to come from the CHIPS Act. Instead, these funds should be eliminated, preventing Congress from taking us further down the road to serfdom.  Originally published at Law & Liberty.
The Congressional Budget Office (CBO) just released the February 2024 Budget and Economic Outlook, and projections look grim. This year, net interest cost—the federal government’s interest payments on debt held by the public minus interest income—stands at a staggering $659 billion in 2023 and has recently soared to about $1 trillion. Unless politicians face these facts and restrain spending, Americans can expect rising inflation and painful tax hikes without improvement in public services. Some politicians quickly blamed a lack of tax revenue, calling for repealing the 2017 Trump tax cuts. But how much more money can they take? New IRS data shows that 98% of all income taxes are paid by the top 50% of income earners, those making at least $46,637. Moreover, 35% of Americans feel worse off than 12 months ago and inflation remains the primary concern for those across the income spectrum. So perhaps, rather than taking more money, the government should own up to its mistakes. The massive net interest costs result from bad spending habits, not a lack of revenue. This requires the federal government to adopt strict fiscal and monetary rules to rein in wasteful deficit spending and money printing that fuel higher interest rates and inflation. Net interest cost is the second largest taxpayer expenditure after Social Security and is higher than spending on Medicaid, federal programs for children, income security programs, or veterans’ programs. And it’s expected to grow. The CBO projects net interest to surpass Medicare spending this year and balloon to $1.6 trillion in 2034 as a result of higher debt and higher interest rates. Interest rates on Treasury debt are at the highest since 2007, paying between 4% and 5.5%, and the rates are expected to rise further. As the stockpile of gross federal debt is expected to grow by about $20 trillion to $54 trillion over the next decade, politicians will face an increasing temptation to rely on the Federal Reserve to pay for it by printing money. If the Fed does, the dollar’s value will decline, and Americans will continue to struggle financially. In an ideal world, politicians will organize the budget process to focus on funding a limited government and ensuring Americans keep their hard-earned money. They would also have plans to cut spending during times of economic downturn to reduce tax burdens on families and businesses and avoid the Keynesian fallacies of deficit spending to fill gaps in economic growth. However, America isn’t Shangri-La. As Thomas Sowell poignantly notes, a politician’s first goal is to get elected, the second goal is to get reelected, and the third goal is far behind the first two. So long as there are investors happy to purchase Treasury debt, there will be politicians who are happy to sway voters with generous spending programs financed by public debt. This must end. Instead, Washington should require strong institutional constraints with a spending limit. The limit should cover the entire budget and hold any budget growth to a maximum rate of population growth plus inflation. This growth limit represents the average taxpayer’s ability to pay for spending. Following this limit from 2004 to 2023 would have resulted in a $700 billion debt increase instead of the actual increase of $20 trillion. Such a policy has been in effect in Colorado since 1992. It is the Taxpayer’s Bill of Rights (TABOR) amendment to the Colorado Constitution. TABOR has revenue and expenditure limitations that apply to state and local governments. The revenue limitation applies to all tax revenue, prevents new taxes and fees, and must be overridden by popular vote. Expenditures are limited to revenue from the previous year plus the rate of population growth plus inflation. Any revenue above this limitation must be refunded with interest to Colorado citizens. A spending cap like TABOR is necessary but not sufficient to solve the problem because politicians in Washington can still pressure the Federal Reserve to pay for the increased debt by printing money. Therefore, it must be combined with a monetary rule to force fiscal sustainability while requiring sound money with fewer distortions in the economy. Monetary rules can come in many forms. While no rule is perfect, research shows that a rule-based monetary policy can result in greater stability and predictability in money growth than the current policy of “Constrained Discretion” whereby the Fed follows rules during “normal times” and has discretion during “extraordinary times.” Whether we are in ordinary or extraordinary times is up to policymakers, who typically don’t want to “let a good crisis go to waste,” as they say. Milton Friedman advocated for a money growth rate rule, the “k-percent rule.” This rule states that the central bank should print money at a constant rate (k-percent) every year. A variation of this rule was used by Fed Chair Paul Volcker in the late 1970s and early 1980s to tackle the Great Inflation with much success. Unfortunately, the Fed had already done too much damage with excessive money growth before then, so the cuts to the Fed’s balance sheet contributed to soaring interest rates that forced destructive corrections in the economy, resulting in a double-dip recession in the early 1980s. This led to the Fed abandoning money growth targeting in October 1982. It is important to note, though, that this “monetarist experiment” was not bound to any law, constitutional or statutory. During that time, the Fed still operated under discretion, which is why it was able to abandon the monetary growth rule just a few years after it had begun, unfortunately. There are other rules that could be applied. John Taylor proposed what’s been coined the Taylor Rule, which estimates what the federal funds rate target, which is the lending rate between banks, should be based on the natural rate of interest, economic output from its potential, and inflation from target inflation. Scott Sumner most recently popularized nominal GDP targeting, which uses the equation of exchange to allow the money supply times the velocity of money to equal nominal GDP. It has different variations, but the key is that velocity changes over time, so the money supply should change based on money demand to achieve a nominal GDP level or growth rate over time. By focusing on a rules-based approach to spending and monetary policy, Americans do not have to worry about electing the perfect candidate every election. Proper constraints will nudge even the worst politicians to make fiscally responsible choices and reduce net interest costs. Furthermore, America will be better positioned to respond to crises at home and abroad. If Congress wants to see who is to blame for the grim CBO projections, they should look in the mirror. Stop looking to take hard-earned money away from Americans and focus on sound budget and monetary reforms now. Don’t miss episode 72 of the Let People Prosper show with guest Avik Roy, president of the Foundation for Research on Equal Opportunity (FREOPP).
We discuss America’s biggest economic problems and how to solve them. Avik and I discuss the following and more:
Check out the full show notes at my Substack newsletter and subscribe to get my posts directly in your inbox.  Americans say the economy is the most important problem facing the country. But major headlines covering the latest jobs report for August do their best to downplay this concern. The New York Times’ headline covering the news was, “August Jobs Report: U.S. Jobs Growth Forges On,” but the economic reality is far less cheerful.
Sure, the jobs report beat the consensus estimate by economists. But that high-level look at the data fails to address underlying issues keenly felt by many Americans that are apparent with more scrutiny. And these problems won’t be over unless policies out of D.C. substantially and quickly improve. Last month, 187,000 jobs were added, according to the payroll survey, compared with the anticipated 170,000. But the jobs added in the prior two months were revised lower by a cumulative 110,000 jobs, bringing the net jobs added in August to just 77,000. This extends an ongoing trend of downward revisions over the last several months. According to the household survey, the unemployment rate, a weak indicator of the labor market’s strength, jumped substantially from 3.5% to 3.8%. Coupled with news of slow wage growth of just 0.2% last month, there is growing concern among Americans trying to make ends meet. We know the higher unemployment rate isn’t from too few jobs available. The number of job openings has been nearly double that of those unemployed for a long time, though decreasing quickly. Instead, the higher rate suggests a sluggish economy in which there are more unemployed or ghost job openings from companies that do not intend to hire but want to gauge interest and competition. There is some good news. The labor force increased by 736,000, which raised the participation rate to 62.8% in August. This is the highest rate since February 2020, just before the shutdowns in response to the COVID-19 pandemic. More people entering the labor force and higher participation rates appear promising. However, the increase in the labor force was a combination of 222,000 more people employed, with the other 514,000 people becoming unemployed. And diving deeper, 4.2 million more adults remain not in the labor force compared with February 2020. Many of these individuals have been unemployed for years, so obtaining employment could be difficult due to a lack of productivity signals in their resume on top of employers dealing with a stagnant economy. The rise in the unemployment rate, lackluster wage growth, and the possibility of unfilled job openings all point to a weak labor market. Add in ongoing stagflation, as too-high inflation continues, and Americans are rightly concerned about the future. Some blame the Federal Reserve for this weakness because of its fight to bring down inflation after creating it. However, Milton Friedman debunked this tradeoff between lower inflation and a higher unemployment rate decades ago. Specifically, there’s no long-run tradeoff between the two, so the Fed must focus on the single mandate of price stability instead. The Fed has been working to combat inflation by hiking its interest rate target to a multi-decade high of 5.5% and slowly reducing its bloated balance sheet. This is why you’ve seen car loan and mortgage rates soar to multi-decade highs. These higher rates significantly disrupt the new car and housing markets. But this is the resulting bust after the artificial post-pandemic “boom” as new money moves throughout the economy and manipulated interest rates create malinvestments. We felt the higher inflation rate last year from the Fed’s actions of close to 9%, and now it’s about one-third of that rate, but this remains about 50% higher than its 2% flexible average inflation target. The Fed has stated that it may raise interest rates further. And I believe that it will be forced to raise its target rate to about 6% before this hiking cycle is over. But just raising this rate won’t be enough to curb inflation for long if Congress’ deficit spending remains unchecked. This will force the Fed to monetize it to avoid putting more pressure on Congress to get their irresponsible fiscal house in order. President Biden and Democrats in Congress made this situation worse with the passage of the misnamed Inflation Reduction Act, which is likely to cost about four times the initial $300 billion estimate over a decade. Their wasteful spending, along with Republicans’ excessive spending before them, has led to a fiscal crisis, the most significant national threat. Congress will unlikely make the needed reforms to the primary drivers of the deficit of mandatory spending programs like Social Security and Medicare because of rent-seeking in politics. This will likely result in the Fed not sufficiently cutting its balance sheet to stop inflation. Rather, the Fed will probably choose to increase its balance sheet, putting more inflationary pressure on the economy when that’s the last thing it needs. A vital measure of the economy known as real gross domestic output, the real average of gross domestic product and gross domestic income, has declined in three of the last six quarters. While I don’t want there to be a hard landing, this is the situation that central planners by Congress spending and taxing too much, President Biden regulating too much, and the Fed printing too much have left us. There will be efforts by the government to correct these government failures, but we shouldn’t double down on past mistakes. Let’s learn from these failures and remember the most recent lesson in the 1980s: President Reagan cutting regulations, Congress passing tax cuts (but spending too much), and Fed Chairman Paul Volcker cutting the balance sheet. Initially, the cuts to the Fed’s balance sheet contributed to soaring double-digit interest rates, and the economy suffered a double-dip recession. However, afterward, the economy was able to heal from the prior hindrances of past presidents, congressional members, and the Fed, resulting in a long period of economic prosperity, which is often called the Great Moderation. What we have today is an economy where the government is growing, and markets aren’t as much. This must be reversed. When workers, entrepreneurs, and employers are free to engage in voluntary transactions, competition thrives, innovation flourishes, and resources are allocated efficiently. Moreover, free markets promote consumer choice and personal freedom. When government interventions, such as wasteful spending, excessive regulations, and high taxes, are removed, markets can function more efficiently and respond dynamically to changing economic conditions. Striking the right balance between constitutionally limited government functions and preserving the freedom of markets is crucial for achieving a vibrant and prosperous economy. Rising unemployment, stagnant wages, and the specter of inflation require a multifaceted approach. Raising interest rates hasn’t been enough. The government must focus on responsible fiscal and monetary policies, including reducing government spending, addressing burdensome regulations and taxes, and substantially cutting the Fed’s balance sheet. Americans are still suffering, and there is no time to waste in aggressively assessing these measures that cause economic strain so that people can get back to flourishing instead of merely “making it.” Originally published at Econlib. |
Vance Ginn, Ph.D.
|
||||
RSS Feed
Proudly powered by Weebly