How we deal with deficits

I am looking at "Options for Reducing the Deficit" by Phill Swagel, dated March 6, 2023. The link is

https://www.cbo.gov/publication/58981

The site doesn't have the level of fanciness that I expect to see at government sites, so I was a little cautious. But the URL is short, simple, and clearly comes from cbo.gov. And Phill Swagel, in a separate search, is identified as director of the CBO:

• Phillip Lee "Phill" Swagel is an American economist who is currently the director of the Congressional Budget Office. 
• Education: Harvard University, Princeton University
• Party: Republican Party 
• Swagel is a professor in international economic policy at the Maryland School of Public Policy and a non-resident scholar at the American Enterprise Institute.

So okay, apparently I'm looking at a CBO site.

 
Let me quote the first paragraph of Phill Swagel's "Options for Reducing the Deficit":

Last month, I issued a statement about the budget and economic outlook for the next decade. In that statement, I said our projections suggest that, over the long term, changes in fiscal policy would need to be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt.

In that first paragraph, Swagel says "changes in fiscal policy" need to be made. After the first four paragraphs he lists "one way" these fiscal changes can be made. The first six items on his list relate to limiting health care costs:

• Establish Caps on Federal Spending for Medicaid
• Limit State Taxes on Health Care Providers
• Reduce Federal Medicaid Matching Rates
• Increase the Premiums Paid for Medicare Part B
• Reduce Medicare Advantage Benchmarks
• Reduce Tax Subsidies for Employment-Based Health Insurance

The next three relate to Social Security cost and revenue:

• Reduce Social Security Benefits for High Earners
• Set Social Security Benefits to a Flat Amount
• Increase the Maximum Taxable Earnings That Are Subject to Social Security Payroll Taxes

There are eight additional items, three related to reduced federal spending, and five to increased taxes.

I'm not going to discuss Swagel's items. I'm just listing em so you know.

My first objection to Swagel's statement is that he says "changes in fiscal policy would need to be made" to deal with the rising federal debt. Why only fiscal policy? Why not put everything on the table? Not just fiscal policy, but all of economic policy. And it shouldn't just be "changed". It should be re-evaluated carefully, not with overly simple adages, and not without rethinking everything they think they know. And not just economic policy, but also the thinking behind policy, and the assumptions behind that thinking. 

And they should ignore the personal preferences of policymakers. We cannot design national economic policy to suit policymakers' preferences. We need to understand and respect what the economy requires, or the economy will never give us what we need from it: Ask Jane Jacobs. (And yeah, maybe I should read past page eleven in that book before I get myself in trouble, talking about things I have not read.)

I understand that Swagel is in the authority position, and he must have been thinking about this already, and he wants to get to the point. Sure. But why even bother if you're not going to offer something new? Higher taxes and lower spending, that's all he's got. 

Grab an earthworm and your bamboo pole, set a spell by your favorite stream, and you will soon catch the big one that Swagel failed to bring home.

 

The same search that turned up Swagel's statement on deficits also turned up The Causes of Budget Deficits in SaylorDotOrg's GitHub pages. Saylor says:

The budget deficit reflects two forces: the stance of fiscal policy and the state of the economy.

Swagel calls for "changes in fiscal policy". Saylor points out two forces: fiscal policy and the state of the economy. The state of the economy, that's the big one that got away from Swagel.

Right after Saylor in my search results is "Treasury Department (.gov)" saying:

The Causes of Deficits and Surpluses. The size of the national deficit or surplus is largely influenced by the health of the economy and spending and revenue policies set by Congress and the President.

The Treasury Department puts the state of the economy first, with spending and revenue and the grade school arithmetic occupying second place.

Next after Treasury in the search results is Kimberly Amodeo at The Balance, saying "Many situations can cause spending to exceed revenue." Many situations: There's more to it than spending in excess of revenue. 

Kimberly Amadeo adds:

There are only two ways to reduce a budget deficit. You must either increase revenue or decrease spending. ... Governments can only increase revenue by raising taxes or increasing economic growth.

Increasing economic growth: there it is again. Saylor knows. Treasury knows. Kimberly Amadeo knows. Even I know. But Phill Swagel doesn't mention it. It's not on the table. Not up for discussion.

The word "economy" does not occur in the Swagel essay. The word "growth" occurs only once, in the phrase "the growth of federal debt". There is no mention of economic growth, and no thought of improving economic growth.  Nor does Swagel mention debt other than federal. In the first paragraph he refers to the "economic outlook", but only to introduce the need for deficit reduction and federal spending cuts. 

What's the plan here? I mean, what the hell, our economy has been in decline for fifty years, so why worry about growth now, right?

That's the plan???

I understand, in Swagel's position as head of CBO, his role is to discuss deficit-reduction, not economic growth. I understand. But his readers may be led astray if he fails to point out that economic growth can solve the deficits problem. By avoiding the topic, Swagel confirms his readers' suspicion that economic growth is no longer an option. That a big mistake unless the plan is, you know, to "abolish government."

 

A cost problem arises from the growth of finance. We can reduce the cost problem, reduce inflation, and improve growth by reducing the accumulation of private-sector debt until until prosperity emerges.

To reduce the deficits we must solve the cost problem by reducing private sector debt and debt service. It's a simple plan, easy to keep in mind.

Private sector debt is oppressively high because policy accelerates borrowing but does not accelerate the repayment of debt. We borrow money faster than we pay it back because policy demands it. Apparently, policymakers never noticed this.

To reduce private sector debt we need policy to induce us to pay down our debt faster than we borrow. Of course, this is not "normal" -- It is the opposite of normal policy. But it is necessary, unless we have debt forgiveness on a massive scale. And that is not likely to happen.