"Skyrocketing debt, higher borrowing costs, and a hobbled economy are predicted in the latest Congressional Budget Office report," notes Reason Magazine.
The CBO says that the national debt will be larger than the economy for the entire next decade. The debt will rise fastest in 2020 and 2021 due to trillions in spending on coronavirus relief. That debt will lead to higher interest payments on the national debt, which will drive up the budget deficit and shrink economic growth by crowding out private investment.
That prediction may sound grim, but it's actually too optimistic, for two reasons. First, the CBO's projections don't take into account the cost of new government programs that politicians may create, such as the massive $11 trillion in new spending proposed this year by Joe Biden. That will result in more deficit spending. Second, the CBO admitted in August that it tends to slightly overestimate government revenues.
Right now, the national debt is already $26.8 trillion, which is nearly 137% of the size of our economy. Even when the economy bounces back to its pre-coronavirus size, the national debt will still be larger than our economy.
And that will still be true a decade from now, according to the CBO. Never before in history has our national debt ever exceeded the size of our economy for so long. The last time it was at such a high level was at the end of the World War II, when the national debt was larger than the economy for a brief period, from 1945-47.
When countries' debts exceed the size of their economy, they sometimes go broke. That happened in Greece, which had to be bailed out in 2009.
"The increases in federal expenditures and the reduction in government revenue" during the coronavirus pandemic "are being financed almost exclusively by borrowing and will push the federal debt to $30 trillion sometime during 2021," warned James D. Gwartney, an economics professor. "Interest rates will inevitably rise at some point, and the additional interest cost will have to be covered by either higher taxes or money creation. The former will slow future economic growth, while the latter will be inflationary."
Trump let budget deficits rise. Joe Biden will likely increase budget deficits far more.
Biden has proposed $11 trillion in new spending, and $3 trillion in new taxes, according to Reason Magazine, which is endorsing neither Biden nor Trump. That could lead to $8 trillion more in national debt, above and beyond what the CBO is projecting.
Biden has proposed much more spending -- and deficit spending -- than his fellow Democrats have proposed in the past. In 2016, Hillary Clinton proposed $1.4 trillion in new spending over the coming decade, but she covered most of that cost with $1.2 trillion in proposed higher taxes. In 2008, Obama proposed some additional spending, but also claimed (mistakenly, in retrospect) that he would implement a "net spending cut."
Biden’s $11 trillion in new spending doesn’t include the cost of reparations, which could cost trillions more. Biden is sympathetic to reparations, but wants to study their feasibility first. Newsweek reported that “Biden said...he was in favor of paying slavery reparations” if “studies found direct cash payments to be a viable option.” As the New York Times notes, reparations “could cost several trillion dollars.”
For the national debt to shrink as a percentage of our economy, the economy needs to grow faster than the national debt. But the economy is likely to shrink if legislation backed by Joe Biden becomes law. Biden has supported California’s AB5, which curbed freelance work and eliminated the positions of thousands of independent contractors. He wants to implement it nationally. Such legislation could lead to a higher unemployment rate, a smaller economy, lower government revenue, and larger budget deficits.
Biden also supports other legislation that might discourage the creation of small businesses, which provide many new jobs. For example, he supports the BE HEARD Act, which would subject even the smallest employers to lawsuits for unlimited punitive damages and lawyers’ fees, and an expansive definition of “harassment” that would require them to police offensive speech by their employees even outside the workplace.
Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law. He also once worked in the Education Department.