KOLB: What Happened To All The Fiscal Conservatives?

Charles Kolb Deputy Assistant to George H.W. Bush
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It’s an election year, right?  So that means a bipartisan rush to spend, spend, spend!

What we’ll get this year, as evidenced by President Trump’s 2021 proposed budget, is targeted spending to aide his re-election plus another trillion-dollar deficit.  House Democrats will pursue their own spending priorities, and closer to election day, we’ll see a mad dash to push spending even higher with another omnibus continuing resolution to avoid a government shutdown.

Spending is the one area of Washington where there really is a bipartisan working consensus.  More is always better, especially when you’re spending other people’s money.  The sad reality is that there are no fiscal conservatives left in either party.

Donald Trump blasted Barack Obama for nearly doubling the national debt, but now he’s rivaling Obama.  Trump’s first budget projected a $456 billion deficit for 2021.  His latest budget proposes a 2021 deficit of $966.6 billion.  Since assuming office, Trump has also signed legislation that adds $4.7 trillion in new debt.

We are rapidly reaching an unsustainable debt-to-GDP ratio that rivals the 112 percent figure at the end of World War II.  By December 2020, we can expect a 108 percent debt-to-GDP ratio. In 1945, that massive debt arose from our successful global war on fascism.  Today’s massive debt comes at what is probably the tail end of the longest business cycle in American history.  Moreover, there’s been no “rainy day” saving that we’ll need for the inevitable future “bust.”

When Obama’s presidency began, the national debt was $10.6 trillion.  When Trump’s presidency began, the national debt stood at $19.95 trillion.  Today, our debt exceeds $22 trillion.  Most economists will tell you that in good times, it’s important to run a budget surplus to prepare for the next economic downturn.  We’re now running deficits in overtime, in good times and bad.

The GOP used to be the party of fiscal sanity, but administering strong medicine is never easy.  It’s simpler to pretend there’s no problem and keep the good times rolling.

The late Peter G. Peterson co-founded the Blackstone Group (now the world’s largest private equity firm), served as President Nixon’s Commerce Secretary, launched the Concord Coalition, and established the Peter G. Peterson Foundation.  Throughout his public and private careers, Peterson was often called a deficit “scold” and a deficit “hawk”.  He warned repeatedly about the dangers of rampant deficit spending.

In 2007, Peterson and his Blackstone co-founder, Steve Schwarzman, took the company public.  A few months before the Blackstone IPO, Peterson told me that he’d probably make a lot of money when the company went public: “I already have a lot of money,” he said, “I don’t need more.”

That’s when I learned of his plans to take $1 billion from his Blackstone earnings and establish his eponymous foundation that would engage business, the media, and young people in an effort to restore fiscal sanity to the American government.  Since its 2008 launch, Peterson’s foundation, plus a handful of other groups including the Concord Coalition and the Committee for a Responsible Federal Budget, have been among the leading voices calling attention to our looming budgetary crisis.  These days, there’s bipartisan deafness: no one’s listening; the spending spree’s just too much fun.2021 Budget

For now.

Perhaps these debt and deficit issues resemble Donald Trump’s impeachment experience: the more Trump was attacked, the more his approval ratings rose.  The more people raise concerns about trillion-dollar annual deficits and our ballooning national debt, the worse the situation seems to become.

So perhaps those of us who worry about this unsustainable trajectory should just keep silent for a while and prepare for the coming collapse.  After all, this movie ran in 2000 and in 2008.  Those few scolds who questioned the durability of the tech boom and the subprime mortgage market were ultimately proven right.

For over a decade, interest rates have been near zero and sometimes negative when adjusted for inflation.  Under that scenario, big spenders always win; savers always lose.

Today’s buoyant economy is really a feel-good, cocaine economy that is sustained by unsustainable monetary and fiscal policies that reward Wall Street’s continued financialization of the American economy.  Meanwhile, American productivity has been declining since the mid-1960s according to Nobel laureate in economics Edmund Phelps.

Given today’s bipartisan silence about our reckless spending, it appears that only a major crisis will change the current path.  The American people should demand that all the presidential candidates address this looming crisis now

Charles Kolb served as Deputy Assistant to the President for Domestic Policy from 1990-1992 in the George H.W. Bush White House