As Congress approaches yet another government funding deadline, the U.S. government is still spending taxpayer dollars at Obama-era levels since lawmakers continue to kick the fiscal can down the road in perpetuity – and one leading economist says that inaction is triggering the return of trillion-dollar deficits that future generations will have to pay.
Vance Ginn is senior economist at the Texas Public Policy Foundation, where he also directs the foundation’s Center for American Prosperity. Ginn also shared his insights on recent stock-market volatility and what it means for the nation’s overall economic health.
On Feb. 8, the short-term continuing resolution approved last month will expire, triggering another partial government shutdown unless a funding bill is approved. Right now, Democrats and President Trump are drawing competing lines in the sand over immigration policy.
As a result, no one is advocating actual changes in spending for the various department and obligations of the government. In essence, the U.S. is still operating at Obama-era spending levels more than a year into the Trump administration.
Congress and Trump have repeatedly avoided dealing with the issue by passing and signing continuing resolutions in April, September, December and January. And there is no indication the next bill will be any different.
“What it seems like they’re doing is trying the same thing over and over again and expecting a different result. That’s the definition of insanity, and that’s what we continue to have in D.C,” Ginn told WND and Radio America.
“Congress hasn’t taken the opportunity here – and the multiple congresses before this – to restrain the growth of spending over time,” said Ginn, and he explained that political considerations are behind the failure to rein in spending.
While Democrats are doing their best to gum up Republican efforts to trim the federal budget, Ginn said the bottom line is Republicans know cutting spending comes with political consequences, so they’re reluctant to do it.
“When you’re looking at the next election cycle, you want to get re-elected,” Ginn said. “So it makes it very difficult to make those tough choices to cut spending for interest groups that are there often with their hands out.”
Listen to the WND/Radio America interview with Vance Ginn:
Recently, Treasury Department officials announced deficits for Fiscal Year 2018 could approach $1 trillion. Most reaction has been quick to blame the recently approved tax cuts. Ginn said that is one factor, but it’s not the primary factor.
“The driver of deficits and debt is spending,” Ginn said. “We don’t have a revenue problem. We have a spending problem. We’ve got to get the spending under control as quickly as possible. This would be a great opportunity to do that.”
And he said deficits will continue to bury America until the big-ticket items are dealt with.
“The president has put out some good ideas, like rolling back some of the funds going to the EPA and some other areas, but we really have to have congressional action,” Ginn warned. “This isn’t just going to take cuts to spending. At some point, it’s going to have to be reforms to entitlement programs to really bend the cost curve so we don’t have massive deficits and debt year after year after year.”
Ginn said every year that lawmakers dither on spending adds another pile to the bill facing our children and grandchildren.
“That means future generations are going to have to pay more in taxes,” he said. “Currently, the national debt is around $21 trillion. [This year’s projected deficit] would push it up to $22 trillion or $23 trillion. If you add in unfunded liabilities for Social Security and Medicare, we’re over $100 trillion in debt.”
Ginn said some states are modeling fiscal responsibility, and Congress could take a lesson from his state of Texas.
“When you look at the Texas model of low taxes, relatively less government spending and sensible regulation, what we’ve been able to do in Texas is pass conservative budgets that don’t increase by more than population growth plus inflation. Actually, it’s been less than that,” Ginn said.
“It would be great to see the day where Congress can do that. And that would help it to live within taxpayers’ means over time.”
Meanwhile, the past several days on Wall Street have investors reaching for the antacid. Before Tuesday’s gains, the markets saw the biggest losing streak in about two years. Ginn said the negative numbers approached the range of a typical correction, but figuring out why takes some work.
“Eighty percent of businesses have come in above expectations for earnings in the fourth quarter, so you would expect greater increases in the stock market as well,” Ginn said. “But there’s also anticipation of faster economic growth and higher inflation, and some of those things are starting to contribute to an increase in interest rates, which slows economic growth and reduces the money supply in circulation.”
But with the Federal Reserve edging interest rates up recently, why is inflation becoming a problem? Ginn sees two reasons.
“Part of that is from the economic growth potential from the tax cuts that were passed and people are already starting to see an increase in their pay,” Ginn said. “As they see an increase in pay, they like to spend more, and that increases demand. Without the increase in supply – which, I think, we will see from increased production from businesses – that would increase inflation.”
But there’s another, very different reason inflation concerns are mounting.
“The Federal Reserve has increased the money supply quite dramatically over the last decade, from quantitative easing and everything else,” Ginn said. “So you’re seeing inflationary pressures from that monetary factor as well.”
The bottom line though, Ginn said, is that Americans should have confidence in the economy going forward.
“The fundamentals are strong. The last three quarters of last year averaged three percent growth. That’s the long-term growth rate of our economy over the last 100 years,” said Ginn, noting the number is significantly better than during the Obama years.