Wimpy, the notable character from the Popeye cartoon series, is back, but this time in multiple forms in connection with federal fiscal policy. Namely, today’s Wimpy can best be compared to the Congress and states’ attorneys general, while the president is Popeye.
With deficits and debt burdens at record levels, while various market-based signals are evident, you would think that elected officials would be taking steps to put our federal finances in order. For example, the declining value of the dollar, rising gold prices, and record interest costs are just a few of many flashing red lights. Additionally, various initiatives are underway to explore alternative reserve currencies to the dollar.
The One Big Beautiful Bill Act (OBBBA) is now law. It has numerous dimensions and significant potential implications. From a macro perspective, it may help to increase economic growth, but that is questionable given our projected massive deficits that can put a drag on business confidence. It will also make our structural deficit and debt challenges worse. Therefore, what will be done to defuse our ticking debt bomb, and what goals should we be trying to achieve?
Regarding goals, we need to increase economic growth to at least 3 percent of gross domestic product and reduce debt held by the public/GDP to no more than 90 percent over the next 10 to 15 years in a manner that is sustainable.
Increasing economic growth requires less federal spending, reasonable tax burdens, reduced regulatory burdens, and greater energy independence, among other things. Reducing debt/GDP requires growing the economy faster than the debt. This means reducing projected federal spending as a percentage of GDP, including interest expense, and increasing federal revenues as a percentage of GDP.
While reasonable people can and will disagree on what the ratio of projected spending reductions to revenue increases should be, voters support a 3:1 ratio of spending reductions to revenue increases over time, including reduced spending on interest. While additional economic growth will help, basic math suggests we cannot grow our way to fiscal sanity and sustainability since the fiscal gap is too great and growing. Therefore, tough choices are required, and the sooner we make them, the better.
What is the comparison to Wimpy? While Wimpy said that he would gladly pay you on Tuesday for a hamburger today, current politicians typically say they will take steps to restore fiscal sanity after they pass their priorities for today. However, Tuesday never comes!
Congress needs to get serious and take two steps to demonstrate to the American people, Treasury investors, the Fed, and the markets that we are committed to putting our federal finances in order. First and foremost, we need to adopt a Fiscal Responsibility Constitutional Amendment that will stabilize debt/GDP at a reasonable and sustainable level. This amendment should replace the current statutory debt limit, which has failed to constrain the growth of government and mounting debt burdens.
Congress also needs to pass a statutory Fiscal Sustainability Commission that will actively engage the American people and make two packages of recommendations that would achieve a guaranteed up-or-down vote in Congress. One package would restore the solvency and sustainability of Social Security. The second package would be to reduce debt/GDP to no more than 90 percent by a specific future year.
While the commission is needed to till the ground and provide cover for Congress to make the needed spending and revenue reforms, only a Fiscal Responsibility Constitutional Amendment, with appropriate enforcement mechanisms, can force Congress to achieve and sustain reasonable debt/GDP levels over time. Such an amendment is much needed and long overdue.
To achieve this, Popeye, the president, needs to flex his muscles and tell Congress that he supports the need for a statutory Fiscal Sustainability Commission and a Fiscal Responsibility Constitutional Amendment. He must advise the states’ attorneys general that he supports the states’ right to sue Congress for its failure to call a Convention of States to propose a Fiscal Responsibility Amendment under Article V of the Constitution.
It is time to take our huge and growing federal fiscal challenge seriously. We must start to discharge our stewardship responsibility to our country as well as younger and future generations of Americans. The time to quit kicking the can down the road is now!
