Marcus: Silence on Fiscal Issues in SOTU is Regrettable

Jan 31, 2014

In an op-ed in the Washington Post, columnist Ruth Marcus laments the lack of discussion of fiscal issues in President Obama's State of the Union address. She points out that the point about the deficit falling by half is somewhat misleading (with an assist from us) and notes that the debt has run up significantly in recent years.

First, the vaunted halving stems from the remarkable (and justifiable) ramp-up in deficit spending at the start of the financial crisis. The deficit in 2009 was $1.4 trillion (and 9.8 percent of gross domestic product). The comparable 2013 figures are $680 billion and 4.1 percent, according to the Committee for a Responsible Federal Budget. Vastly improved, but higher in percentage terms than in all but seven years between 1948 and 2008.

Second, and more important, is the stunning rise in the amount of debt as a share of the economy. When George W. Bush took office, debt stood at 33 percent of GDP. Obama inherited a debt of 43 percent of GDP. That figure is now about 74 percent, the highest since 1950.

Of course, the biggest issue with debt is with the long-term picture. Marcus notes that debt projections show it rising as a percent of GDP starting in 2018 into the foreseeable future.

According to the Congressional Budget Office (CBO), the debt begins to slowly rise again, driven by increasing interest costs and growing spending for Social Security and government health-care programs. By 2038, the CBO projects, debt would reach 100 percent of GDP, more than in any year except 1945 and 1946.

This is scary, or should be. The CBO ticked off the reasons: Large deficits over the long term drag down economic growth, crowding out investment and driving up interest rates. For the federal budget, higher interest costs consume a growing share of spending, preventing revenue from being used in more productive ways. Sky-high debt constrains policymakers’ flexibility to respond to emergencies such as war or recession. It raises the risk of a fiscal crisis in which investors become unwilling to finance U.S. borrowing.

Marcus concludes that "Once this president promised to stop kicking the can down the road. Now he acts as if there is no can." While there has been progress on the deficit in recent years, that progress has mostly been confined to the short- and medium-term. The long-term debt problem remains. It should not be ignored.

Click here to read the full op-ed.