Freezing federal spending
Concern about the federal deficit and the debt is widespread. One simple proposal often offered to reduce the deficit is just to freeze federal spending at current levels. The idea is that as federal revenues rise the annual deficit, and ultimately the total debt, will fall. Is there any issue with this proposal? N.C. State University economist Mike Walden responds.
“Well, it’s a very direct, simple approach, and I think it follows what many people would do with their own budget if they’ve got a problem. … They simply say, ‘Hey, I’m not going to spend any more this year than I did last year and therefore my finances will get back to shape.’
“The problem with that personal approach, as well as with the federal approach, is what happens if the number of people, say, that your personal budget is financing — if you have another child, you’ve got another mouth to feed.
“And essentially this is the problem in the national budget. The national budget is really being driven by demographics — the fact that we are an aging society. As we age, more people every year, in fact every day, qualify for Social Security, Medicare, and some for Medicaid. And that’s really pushing up federal spending.
“Therefore, if we freeze federal spending and say we’re not going to spend any more this year than we did last year, but you’ve got more people qualifying for those three programs, you’re going to obviously have to cut what each of those people gets. So the real issue here is demographics and how we solve that. And we have to solve that demographic issue in terms of people — more people qualifying for federal programs — before we really solve the federal budget and debt problems.”Category: Economic Perspective