If you live on the ocean and you hear that a hurricane is headed your way, you have two options. You can board up your windows, load up your possessions, get in the car and head inland. Or you can ignore the weather forecast and sit on the beach drinking beer until you get blown away.
That's roughly the fiscal dilemma in which Americans find themselves. A deluge of debt, looming on the horizon, threatens to wreak frightful damage on our economic future. But instead of taking steps to minimize the risk, we're acting as though the skies are clear and always will be.
That's the essence of a new report by the nonpartisan Congressional Budget Office, which has the thankless task of reminding us that our budgetary choices have consequences. The CBO says that in recent months a dismal outlook has gotten even darker as projected future spending — particularly on entitlements such as Social Security, Medicare and Medicaid — expands much faster than expected revenue.
When you spend more than you take in, your debt grows. Federal debt held by the public peaked at 113 percent of total GDP right after World War II, when the U.S. government had to spend vast amounts to defeat Germany and Japan. Today, the debt stands at about 41 percent of GDP.
But with the government running trillion-dollar deficits and facing the baby boom generation beginning to retire, CBO estimates that the debt will break the previous record by 2026 and hit 200 percent of GDP by 2038.
"Having spent over a decade worrying about budget deficits," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, "I can quite honestly say that things have never looked as bad as they do now."
What would it mean to let these developments proceed unchecked? It would mean a growing share of our taxes would go just to service the debt. It would mean the government would have to borrow more and more money, diverting funds from the private investment needed to nourish economic growth. It would mean steadily rising interest rates, straining the economy as well as the taxpayer.
It would invite the Federal Reserve to effectively reduce the debt by generating inflation. And eventually, it could push the U.S. government into default — making it even more expensive, if not impossible, to borrow to cover its annual shortfall.
In the long run, Americans will have to accept a containment of spending, an increase in taxes, or both. Neither option is pleasant — but they will only hurt more and yield less the longer they are postponed.
So Congress and the president have a duty to address the problem now rather than put it off till next year or next decade. Getting yourself, your loved ones and your property out of the way of a hurricane is no picnic. But it beats the heck out of letting it hit you at full force.
© 2009, Chicago Tribune