This is a guest post by Concord Coalition intern Rob Ryan
While the fundamentals of the United States economy are strong in the near term, the nation faces major challenges that may put the sustainability of current economic growth at risk. Chief among these challenges is the already massive and quickly increasing federal debt, which is at its highest level in over 70 years as a percentage of the economy.
The Organization for Economic Cooperation and Development explores these themes and more in its recent report, “OECD Economic Survey of the United States, June 2018.” The OECD debuted its report with a briefing at which Wall Street Journal commentator Greg Ip interviewed Ángel Gurría, secretary-general of the OECD, and Kevin Hassett, chairman of President Trump’s Council of Economic Advisers.
Secretary-General Gurría acknowledged the near-term strength of the U.S. economy -- unemployment has fallen below 4 percent, consumer confidence has hit a post-recession high, and economic growth is expected to reach 3 percent in 2018 and 2019.
However, Gurría implored lawmakers to not grow complacent as a result of this near-term economic strength. He expressed concern for recent escalations in trade tension, low productivity growth, and most of all, the United States’ increasingly unsustainable fiscal position.
Ángel Gurría’s call for increased fiscal responsibility is well-founded, with federal budget deficits expected to surpass $1 trillion by 2020. Even more concerning, the Congressional Budget Office (CBO) estimates that debt held by the public will rise from 78 percent of the economy now to 96 percent by 2028. According to the International Monetary Fund (IMF), the U.S. is the sole economically-advanced nation in the world that plans to dig itself deeper into debt over the next five years.
Large federal deficits are unsustainable and ultimately lead to diminished future economic growth by crowding out private investment. What is more, rising interest rates will force the government to spend an increasing amount on interest payments, which already cost $316 billion in 2018 and are projected to reach $915 billion in 2028, according to the CBO.
The OECD offered a range of policy recommendations in its report, including increased access to job training and affordable housing; support for new investment; and a plan to fight the opioid crisis. Most significantly, the OECD recommended that Congress and President Trump take advantage of strong near-term economic growth to align federal spending and revenues.
Policymakers in Washington should heed this advice and restore sustainability to the federal budget. In promoting a responsible fiscal policy, Congress and the president can make progress towards increasing long-term economic growth while sustaining our nation’s strong near-term growth.