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The New Fiscal Consensus Is an Accident Waiting to Happen

The New Fiscal Consensus Is an Accident Waiting to Happen

(Bloomberg Opinion) -- Observers calling for a more consensual style of American politics were dealt something of a corrective by President Trump and Congress this week. Republicans and Democrats agreed that public spending and public borrowing should rise a lot faster than previously promised. For the moment, it seems, fiscal indiscipline is a bipartisan endeavor.

Granted, there’s one good thing about this agreement, and it’s important. The deal postpones for a couple of years the next debt-ceiling-and-government-shutdown crisis, which Congress and the administration had previously penciled in for September. Threatening financial markets from time to time with deliberately induced calamities is a proven failure as a way to contain spending pressures. It also needlessly destabilizes the economy, and makes the Federal Reserve’s difficult job even harder.

So it’s good that the next debt-ceiling “showdown” has been avoided. But the U.S. needs a permanent remedy for this management-by-crisis syndrome, not a temporary one. And in the meantime it needs Congress and the administration to concern themselves with fiscal sustainability — in a way that yields results, not pointless posturing.

According to the Committee for a Responsible Federal Budget, the deal just announced will add $1.7 trillion to public spending over the next 10 years — roughly as much as the 2017 tax cuts, which were themselves unaffordable. So-called offsets within the plan fall way short of paying for the increases, meaning that public debt will rise even faster than the steady increase that was already forecast. The projected debt ratio approaches 100% of gross domestic product by 2029, even assuming no recession between now and then. When the next recession does arrive, diminished space for fiscal maneuver will make it harder to deliver a strong budget stimulus when it’s actually needed.

A consensus based on the Democratic Party’s fondness for public spending of most kinds and the Republican Party’s aversion to taxes of any kind won’t serve the U.S. well. In the past, the case of fiscal austerity has been overdone, and the kind of fiscal rigidity that equates the government’s budget with an ordinary household’s financial planning oversimplifies the issue. But it’s no oversimplification to say that a policy of high and relentlessly rising deficits and debt ratios, with the economy already at full employment and short of spare capacity, is grossly irresponsible.

Just because there’s consensus doesn’t make it right.

Editorials are written by the Bloomberg Opinion editorial board.

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