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Would getting the economy on track give us a free pass out of the federal budget mess?

By Scott Bittle and Jean Johnson
web posted January 31, 2011

It looks like the country might finally be gearing up to tackle our massive federal deficits and growing federal debt. If history is any guide, serious debate about unpleasant things like cutting popular programs and raising taxes will be accompanied by plenty of people hawking miracle cures that will take away our pain.

So it's no surprise that a lot of commentators, on both the left and the right, say that the real answer to the deficit and national debt is to fire up the economy and "grow our way out of it," with some even calling economic growth "the miracle deficit cure."

There's hardly anything more popular than prosperity. Business people thrive when the economy is growing; it creates jobs and rising incomes so workers like it too. If you're a comic book fan, even super-villains like Lex Luthor and the Penguin enjoy the benefits. With their far-flung business dealings, they pretty much pursued a pro-growth policy. For them, a growing economy meant there's that much more to steal.

The truth is that we do need healthy economic growth to balance the budget. The other truth is that a growing economy simply won't be enough.

If the economy grows, the government takes in more tax revenue, because businesses are more profitable and people are earning more money. Plus, if the overall economy is growing faster than the government is piling up debt, then the national debt keeps becoming a smaller and less troublesome part of the overall economic pie. Think of it like swimming with the tide, rather than against it. This is exactly what happened after World War II, when the national debt was at its historical peak in comparison to the whole economy. The post-war boom played a huge role in getting the debt down.

So why isn't economic growth enough? The first catch is that all the projections say the national debt is going to grow faster than the economy, not the other way around.

Because of the double whammy of rising health care costs and an aging population, spending on Medicare, Medicaid and Social Security will grow faster than the overall economy will. Without changes, spending on these programs will grow so fast that there's no way the economy could keep up.

What's striking is how many analysts agree on this. That's the assessment of all three of the government's budget agencies: The White House Office of Management and Budget (under both Bush and Obama), the nonpartisan Congressional Budget Office, and the Government Accountability Office. It's stated flatly in the Financial Report of the United States Government, the government's equivalent of a corporate annual report. Independent experts tell exactly the same story: "No reasonably foreseeable rate of economic growth would overcome this structural deficit," concluded the Committee on the Fiscal Future of the United States, a panel set up by the National Research Council and the National Academy of Public Administration. Those projections are the reason why all these groups consider the federal budget "unsustainable."

There's also the irritating fact of life that experts can't agree on what we should do to unleash all this growth anyway. In fact, you can easily find an economist or a think tank who will argue that almost anything will expand the economy. Anything.

"Cut taxes! Cut regulation! Get government out of the way! It'll spur growth!" say the conservatives.

"Spend more! Crack down on Wall Street! Close the income gap! Invest in education, and infrastructure. It'll spur growth!" say the liberals.

And even with a growing economy, we still need to get spending in line with revenues. You know all those athletes and Hollywood stars who make millions and still wind up in bankruptcy court? Even when the money pours in, you still have to make ends meet.

We absolutely need economic growth. We need it to help solve our fiscal problems, and we need it for the jobs and prosperity all of us want. But there's a big difference between "we can't solve our budget problems if the economy doesn't grow" and "if the economy grows everything will be fine."

In the end, we have to make some decisions - - like deciding what we want the government to do for us, and what we're willing to pay for it. ESR

Scott Bittle, author of Where Does the Money Go? Rev Ed: Your Guided Tour to the Federal Budget Crisis, is the executive editor of PublicAgenda.org, twice nominated for the Webby Award as best political site.  He is also an award-winning journalist. Jean Johnson, co-author of Where Does the Money Go? Rev Ed: Your Guided Tour to the Federal Budget Crisis, is the Executive Vice President of Public Agenda, has more then 20 years of experience understanding public attitudes on a broad range of issues. She has also written for various publications such as USA Today, Education Week, and the Huffington Post. For more information please visit WhereDoesTheMoneyGo.com and follow the authors on Facebook and Twitter. © 2011 Scott Bittle and Jean Johnson.




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