Washington's debt-defying show goes on

One of the more clownish and familiar performances in the modern American political circus is the deficit contortionist routine we're seeing once again with last week's enactment of President Joe Biden's "American Rescue" spending spree.

You know how it goes: Whenever Republicans are in power and pass legislation that deepens federal red ink (as they frequently do), Democrats are shocked and appalled. In 2017, longtime Democratic ringmaster Nancy Pelosi called the GOP's big Trumpian tax cut variously "armageddon" and "Frankenstein" saying it "robs the future to reward the rich."

The debt-defying Republicans change the subject, waxing rhapsodic about the incalculable benefits sure to follow from (usually) the ample income tax cuts they've enacted, much to the satisfaction of prosperous Americans who pay most income taxes, without much balance in the way of compensating spending reductions.

The GOP rediscovers its horror of deficits the moment Democrats regain power, as they did in January, and pass legislation to deepen federal red ink (as they, too, frequently do).

And at the first Republican gasp, Democrats, right on cue, acrobatically shift position and declare that, deficits or not, the nation simply cannot afford to forgo the (usually) ample spending programs they've enacted, including generous subsidies for the coast-to-coast "blue" empire in state capitals, big city bureaucracies, the education establishment, union pension funds, etc.

I've never considered myself a particularly apocalyptic deficit nag. But for the record, in December 2017, I wrote that the GOP tax bill Pelosi thought monstrous "has some virtues and many problems, above all a ruinous cost that will deepen the nation's debt crisis."

So I stake a modest claim to consistency in worrying now that Biden's "stimulus" plan, some of which is obviously needed, also includes extravagances that make it another overly costly step down a long road to ruin.

The well-respected Congressional Budget Office (CBO) has a rather better claim to credibility as a deficit Cassandra. And only this month CBO issued its latest prophecy of trouble ahead — even before Biden and friends stimulated America.

Although the basics of CBO's deficit message may have become as old-hat as the politicians' alternating deficit humbug, it's worth giving it a listen now and then.

Even before the Rescue Act's passage, says CBO's "2021 Long-Term Budget Outlook," this year's deficit "at an estimated 10.3 percent of gross domestic product (GDP)," was set to be "the second largest since 1945, exceeded only by the 14.9 percent shortfall recorded last year."

The record-setting deficits were expected to decline somewhat during the remainder of the 2020s before soaring again as the aging of the population continues. Newly stimulated deficits will decline less and soar more.

But the real worry is the total accumulation of debt CBO foresees — the compounding result of policies enacted over many decades by administrations and congresses controlled by both parties (and again, on tap even without the exuberant progressive agenda the new powers in Washington are working on).

By 2031, just 10 years from now, CBO projected, total debt "would equal 107 percent of GDP, its highest level in the nation's history."

Three decades from now, if the flow of red ink doesn't slow (never mind if it intensifies), America's debt would be "by far the highest" it has ever been, CBO estimates, at more than twice the size of the entire economy's annual output. And it would be "on track to increase further."

"So what?" is the likely response from a certain kind of new-breed progressive, intoxicated with trailblazing economic theories that all have the pleasing quality of affirming the wisdom of progressive ideology. A fuzzy but fashionable hypothesis called Modern Monetary Theory holds that any government which controls its own currency doesn't really need to worry about how much debt it takes on.

Fact is, while year after year political factions have taken turns proclaiming that they abhor large deficits, American government has consistently behaved as if it believes government debt has little sting for about a half century now. But CBO, with its old-fashioned ideas, doesn't think this can go on without disagreeable results.

"Persistently rising debt as a percentage of GDP," the agency says, would "pose significant risks. … It would increase the risk of a fiscal crisis … in which investors lose confidence in the U.S. government's ability to service and repay its debt, causing interest rates to increase abruptly, inflation to spiral upward, or other disruptions. … And it would increase the likelihood of less abrupt, but still significant, adverse effects, such as expectations of higher rates of inflation, an erosion of confidence in the U.S. dollar as an international reserve currency, and more difficulty in financing public and private activity in international markets."

Debt has its uses, of course, CBO acknowledges, including "to respond to unforeseen events or … to promote economic activity or strengthen national defense [or] provide support to the economy during challenging times, such as the current pandemic."

The political pretenders aren't altogether wrong when they insist that much depends on how borrowed funds are used. Debt-financed spending that strengthened the productivity of the economy — what CBO calls "high-quality and effective federal investment" (think upgrades of infrastructure, or research funding) — could help America produce the actual housing, haircuts and health care an aging population will need in the years ahead.

But those gains "would only partially mitigate the adverse consequences of greater borrowing."

What's worse, "effective investment" is not primarily what we're spending all this borrowed money for. Interest payments on past borrowings and current consumption spending are the main things the modern federal government does.

Under current trends, CBO projects, "spending for Social Security, Medicare, and Medicaid for people age 65 or older would account for about half of all federal noninterest spending by 2051, rising from about one-third in 2021."

So this trajectory won't be easy to change, even if our leaders were ever to decide to try.

D.J. Tice is at Doug.Tice@startribune.com.