Gene Epstein‘s latest “Economic Beat” column in Barron’s explores Hillary Clinton’s and Donald Trump’s disappointing responses to critical long-term fiscal challenges.
In last Wednesday’s third and final debate between the two main presidential candidates, questions posed about the economy touched off an intellectual race to the bottom that can only be judged a dead heat.
Chris Wallace of Fox News asked the two candidates about “the national debt,” correctly noting that federal debt held by the public had ballooned to 77% of gross domestic product, “the highest since just after World War II.” And yet the fiscal plans of both candidates would raise the debt-to-GDP ratio even further, prompting his pointed question, “Why are both of you ignoring this problem?”
Donald Trump’s non-answer took the form of declaring that “you don’t have to bother asking your question” because his policies would bring annual economic growth of “5% or 6%,” which would presumably make it possible to cover all budgetary obligations. Over the past four decades since the mid-1970s, there has not been a single 10-year period in which growth even ran as high as 4% annually, partly because recessions tend to occur. If the fiscal crisis of the state can only be averted by fulfilling Trump’s outlandish claims about potential growth, then we should really be alarmed.
Hillary Clinton’s non-answer took a more subtle form. She insisted that her ambitious spending proposals would “not add a penny to the national debt” because she plans on “going where the money is” by getting the “wealthy and corporations to pay their fair share.” Since new spending programs generally underestimate costs, while taxing programs tend to overestimate revenues, that not “a penny” will be added to the debt from her tax-and-spend proposals sounded equally outlandish.
MORE TO THE POINT, however, Clinton ducked the question by claiming only that she would not make the problem worse. But unless something is done, the debt-to-GDP ratio will continue to climb to dangerous levels. In the July report on the long-term budget outlook released by the nonpartisan Congressional Budget Office, the baseline scenario projects a rise in the ratio to 86% by 2016 and to 141% by 2046, a record level that the CBO believes could trigger a fiscal crisis.
The agency’s baseline scenario assumes that nothing will be done to tame the soaring debt. By proposing only to spend more and tax more, Clinton in effect claims she’ll do nothing at best, but more likely she will add to the debt.
