Jerry Bowyer | On April 16, 2021

In March, the Congressional Budget Office released its Long-Term Budget Outlook. In a recent presentation, the CBO director warned that the report did not take into account the recently signed American Rescue Plan Act, and that things will very likely be worse than the official projections we are about to read:

CBO’s most recent projections, which underlie this presentation, were published on March 4, 2021. They do not include the effects of the American Rescue Plan Act, which was enacted on March 11, 2021. The effects of that law are projected to increase the federal deficit by $1.9 trillion from 2021 through 2031, mainly by increasing spending.

So, how bad are things without counting the bad effects of a bill with a name that promises to rescue us? In the long-term, the CBO thinks that things are going to be pretty bad. Growth expectations are falling, mainly because of demographic trends. It puts potential growth over the next ten years at 1.8 percent per year, which as the chart below shows, is well below historic rates since 1950. That projection is primarily due to a lower potential labor force. In other words, there are some limits to how much we can supply-side our way out of this, since supply-side economics is about changing individual incentives, which presupposes that there are enough people around to be incentivized into boosting supplies of goods and services. Of course, per capita GDP can grow, but to service our enormous debt obligations and entitlement programs, we need large aggregate increases in wealth creation.

The CBO shows that even to maintain its parsimonious population-growth outlook, we will need a lot of immigrants. This creates a serious dilemma: Our economy needs immigrants to grow, but high rates of immigration seem to fuel social tensions and, what is more troubling from a macroeconomic point of view, appear to bring in its wake a shift in voting patterns toward the low-growth coalition. In other words, if we invite enough immigrants to grow the population enough to beat the “new normal” growth rates, do we risk simultaneously shifting the electoral balance toward the kind of policies that push us back down to low growth?

Assuming that the CBO’s outlook is right about growth potential, our fiscal future might look like this:

Most of the scariest stuff is to the right of the “projected” line at year 2020 — which means it’s something that might happen — but that leaves a fair amount of frightening mauve in the already-happened period from 2008 to now.

All of this also assumes no big spike in interest rates. This is based on Goldilocks-like interest-rate assumptions, which means that it has embedded into it continued debt monetization. If the Fed doesn’t play ball, the interest portion of debt services will kick in a lot faster. The Fed has already signaled that it will act to rescue America from the American Rescue Plan Act both by keeping its target rate low and by indicating in its most recent meeting that it intends to continue to do so. Given the rising importance of interest on the national debt, it’s unlikely that they will fail to rescue us (and our good faith and credit) from future fiscal-rescue attempts. And the only way they can rescue interest rates is by sacrificing the dollar.

This article originally appeared on National Review.

Jerry Bowyer

Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.

Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.

Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.

Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.

Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.

Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.

Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.