Joe Biden keeps telling us that he cut the budget deficit by $1.7 trillion. It's one of the great all-time falsehoods of presidential economics.
Actually, even right now in Fiscal Year 2023, the CBO is estimating a $2.25 trillion deficit. Oops! Sorry, Joe, but the story is much worse. In the long term, the Congressional Budget Office now estimates that in the next 30 years, the U.S. budget gap will be nearly 200% of GDP.
Now, that number is so outrageous that it's really hard to get your brain to wrap around it. I have been in the economics business for a long, long time, but I've never seen a number like that. Frankly, I'm not even sure what it means.
If the Federal Reserve monetizes all those new bonds, like they have in the recent past, then we're going to see one whopping inflation. Even if the Fed doesn't buy all the new bonds and doesn't print all that new cash, I would have to think interest rates are going to have to go up — a lot and, at some point, the government's control of the economy becomes greater and greater. Think Soviet-style central planning. Think more massive regulatory burdens.
UPS, TEAMSTERS TO RESUME TALKS AS STRIKE DEADLINE NEARS
Think how many Senate and House members are going to start screaming, "Raise taxes, raise taxes!" Now, that would be stupid. If you think you're going to reduce deficits with higher tax rates, please think again. What will actually happen is the economy will sink lower and lower, along with revenues falling, and the deficits will actually be even greater than the CBO is predicting. The Laffer curve works.
Now, is there a way out of this crazy number of 200% of GDP deficits? Of course there is. Limit spending to 20% of GDP or less, minimize regulatory burdens, keep tax rates low and produce more rapid economic growth.
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Go back to history when this country grew at 3.5% yearly for over 50 years after World War II. Actually, for the entire 20th Century, we grew at roughly 3.5% yearly, and that includes even the Great Depression.
I say in the next decades, we should be aiming for 4%-plus growth with an economic agenda that stresses free enterprise and free-market capitalism. Once again, repeat after me: A strong King Dollar is good as gold, low tax rates, minimal regulations and strict government spending limits. I don't know how that statistically plays out, but it's going to be a lot less than 200% of GDP. Guess what. Prosperity solves debt.
This article is adapted from Larry Kudlow’s opening commentary on the July 20, 2023, edition of "Kudlow."
