There’s a financial story that deserves more attention than it's getting – and that is the new Congressional budget estimates of Joe Biden's baseline over the next ten years. These numbers are a fiscal fiasco.
Government spending and borrowing puts us squarely on the road to bankruptcy. Over the next ten years, Biden's spending goes from $6 trillion to $10 trillion. His budget deficit goes from $1.7 trillion to $2.6 trillion.
His borrowing from the public goes from – are you ready for this? $26 trillion, which is bad enough, all the way to $48 trillion which is unbelievable.
The Congressional Budget Office gives us fifty-year averages with which to compare these numbers. So, Biden's spending as a share of GDP goes from 21% of GDP to 24%. His borrowing goes from 48% of the economy to 116% of the economy and, even with all that government stimulus, the economy is projected to grow by barely 2% over the next ten years.
So, while on the one hand the Federal Reserve is trying to restrain inflation, the Biden administration's massive spending and borrowing is an inflation accelerator, at least it has the potential.
By the way, even while all this government spending and borrowing has temporarily stimulated higher GDP growth, it's also part and parcel of what I call the affordability crisis, where recent lower inflation does not delete big price hikes over the past three years for essentials like groceries, gasoline, electricity and so forth.
Ordinary working folks have lost nearly 5% of their real wages over the past three years, as a result of the lingering effects of Bidenflation. According to a recent TIPP poll, six-in-ten people live paycheck to paycheck. 24% have zero emergency money in the bank.
Groceries up 20%, gasoline 34%, electricity 24%. Measured on a pre-pandemic basis, middle-class family incomes went up more than $6,000 during the Trump years and have fallen roughly $4,000 under Biden.
We've had better than expected GDP growth the last couple of quarters, but much of it has come from government spending and borrowing, while the private business economy may actually be in recession.
You read about major layoffs in finance and tech, but you never read about layoffs in government ever. Private wages are rising a little over 4%, but government wages rising almost at a 10% rate. The Fed may be trying to hold down the money supply, but with massive government spending it's going to be hard to restrain inflation on a permanent basis.
Incidentally, the CBO numbers show it's a spending problem, not a revenue problem. Over the past fifty years, revenues have averaged a little over 17% of GDP. The CBO estimate suggests that's exactly where revenues will be leveling off in the years ahead. No, it's the spending problem, stupid or the borrowing stupid and it's got to stop.
We need a growth budget that thoroughly reforms spending and the civil service bureaucracy that does the spending. We need something like the Grace Commission, established forty years ago by President Reagan, that found trillions of dollars of wasteful spending inside the federal government.
We need to keep the Trump tax cuts permanent to maintain supply-side incentives for a private sector business rebound and, here's a thought, how about a return to executive budget impoundment?
Something that was taken away fifty years ago during the Watergate scandals, but would be a very useful presidential tool to deregulate spending and red tape. Watch for former President Trump to talk a lot more about this in the weeks and months ahead. Lord knows we need it.
This article is adapted from Larry Kudlow’s opening commentary on the February 12, 2023, edition of "Kudlow."