The Congressional Budget Office (CBO) just released an update to its 10-year fiscal projections. CBO highlights higher inflation, lower revenues, and higher spending than previously projected.

CBO’s report arrives as the debate over the debt ceiling heats up in light of an early June deadline. House Republicans passed their opening bid to raise the debt ceiling by $1.5 trillion or through March 2024, whichever comes first. The Limit, Save, Grow Act would save $4.8 trillion, reducing the 10-year spending total by 6 percent. So far, President Biden and most Congressional Democrats have refused to negotiate, demanding a so-called clean debt ceiling increase—despite strong precedent in U.S. history for pairing debt limit increases with policy reforms to address rising debt. According to Secretary of Treasury Janet Yellen, federal borrowing authority could run out by June 1.

Lawmakers ought to heed the CBO’s latest update. The responsible choice is to raise the debt limit in combination with fiscal reforms that begin to stabilize federal debt as a percentage of GDP (gross domestic product). A Better Budget Control Act which enforces a single, total limit on discretionary spending, accounts and pays for emergency spending, and sets up an independent nonpartisan commission to reform Medicare and Social Security would allow Congress to responsibly raise the dollar-denominated debt limit without further inflating the public debt as a share of the economy.

The following are the key trends outlined in CBO’s report:

Debt will grow to 119 percent of GDP

Federal publicly held debt (the debt the United States has borrowed from credit markets) is currently $24.6 trillion. As a percentage of the country’s yearly economic output, public debt will be 98.2 percent of GDP by the end of 2023. By 2028, public debt will surpass its all-time World War II high of 106 percent of GDP. By 2033, public debt will rise to 118.9 percent of GDP. See the CBO graph above for historical context and additional longer-term debt projections. That’s about 0.6 percent or 264 billion more than CBO projected just three months earlier.

According to a recent paper published by the American Enterprise Institute (AEI), CBO may be underestimating the potential growth in debt, deficits, and spending. CBO assumes that many key variables, such as real interest rates, health care cost, and economic growth, will continue based on past trends. Under AEI’s alternative projection, “these variables are outcomes produced by supply and demand, based on logical functional forms and deep parameter estimates from the literature or empirical analysis.” Their model results in the debt-to-GDP ratio reaching 132 percent by 2032.

High and rising debt slows economic growth, increases interest rates, and crowds out private investment. These negative economic effects will only worsen as the United States’ fiscal trajectory deteriorates. If the United States continues to unsustainably accumulate debt, it raises the risk of a sudden fiscal crisis where bond holders lose confidence in the federal government’s ability or willingness to service debt without inflating away the debt’s value by reducing the purchasing power of the national currency.

Rising entitlement spending is the main cause of widening deficits

In 2022, the budget deficit was $1.4 trillion, about $340 billion more than CBO originally projected. The difference can primarily be attributed to the Biden administration’s costly student debt relief policy. The Committee for a Responsible Federal Budget now puts the total cost of Biden’s student loan policies at $970 billion. This includes student debt policies implemented or proposed since the pandemic, such as “$400 billion from debt cancellation, $230 billion from the Administration’s new IDR program, nearly $200 billion from the student debt pause, and almost $150 billion from a variety of other actions,” according to Marc Goldwein. CBO projects the deficit to continue to widen to an average $2 trillion or 6.1 percent of the GDP over the 2024 to 2033 period. The average non-crisis deficit, post-Great recession and pre-pandemic, was about 4 percent of GDP.

Elevated spending is the root cause of increasing deficits. While emergency pandemic spending and student loan policies have driven recent deficit increases, CBO expects major entitlements including Social Security and federal health care programs to be responsible for the lion’s share of future spending. From 2023 to 2033, Social Security spending will grow from $1.3 trillion to $2.4 trillion, an increase of 85 percent. Major health care programs, including Medicare and Medicaid, will grow from $1.7 trillion to $3.1 trillion over the same period. Combined, major entitlements will be responsible for 60 percent of total spending growth over the next 10 years. In total, the 10-year projected cost of major entitlements has risen by $153 billion since CBO’s February report.

Rising interest costs worsen fiscal outlook

As the government borrows more, interest costs will rise. This borrowing cost, expressed as net interest cost in the budget, is the second largest driver of rising spending after major entitlements. This year, CBO projects net interest costs to total $640 billion, consuming 13 percent of federal revenues for 2023. In just 10 years, net interest costs are projected to reach $1.4 trillion, consuming 20 percent of federal revenues for 2033. For context, interest costs will exceed total annual discretionary defense spending by 2028 and nondefense discretionary spending by 2031. Compared to CBO’s February projections, 10-year interest costs have risen by $131 billion due to increases in the actual rates paid on recently issued Treasury securities and an increase in expected 10-year deficit spending. Were interest rates 1 percentage point higher than currently projected interest costs would rise to nearly $2 trillion by 2033, for a cumulative interest cost increase of $3 trillion over 10 years.

In addition to putting the United States deeper in the hole, rising interest costs could place budgetary constraints on Congress. As interest costs consume a larger share of federal revenues, legislators will have fewer taxpayer dollars remaining to fund other critical spending priorities like defense.

Economic trends worsen while spending increases

CBO projects higher inflation than it did in February, increasing its projections of net interest spending by $131 billion over the 2023 to 2033 period. CBO also reduced its short-term projections for government revenue and economic output to reflect lower economic growth. In April of this year alone, the government collected $250 billion less in taxes than expected. One major uncertainty is the President’s student loan policy, currently under review by the Supreme Court. Biden’s proposed income-driven repayment plan for student loans would add $111 billion to deficit spending over the next decade — this policy was not included in CBO’s latest outlook. However, if the Supreme Court rules against President Biden’s student loan debt forgiveness, this could reduce deficits by $400 billion over the next decade. In total, net spending projections for 2023 to 2033 increased by $234 billion.

Fiscal guardrails can create a sustainable fiscal future

CBO’s updated baseline projections should give lawmakers across the political spectrum cause for concern. High and rising public debt increases the risk of a sudden fiscal crisis, constrains the government’s ability to respond to unforeseen emergencies, and slows economic growth. In the last three months alone, the fiscal and economic outlook has changed enough to warrant worsened 10-year budgetary projections. CBO’s revised projections may still be too optimistic. CBO does not account for the possibility of a major military conflict, financial crisis, or public health emergency over the next decade. Any of these crisis events could significantly increase spending, widen deficits, and further add to the public debt.

Congress and the President ought to consider a Better Budget Control Act to reduce inflationary pressures and limit the risk of a future fiscal crisis. New limits on discretionary spending, immediate reductions to mandatory programs, and future savings from reforms to Medicare and Social Security put forth by an independent commission can stabilize the federal debt, by saving at least $8 trillion over the next 10 years. Such an agreement would signal to markets that the federal government intends to be a sound fiscal steward, which would enhance confidence in U.S. policymaking. Greater confidence would boost economic growth and American incomes. By reducing uncertainty over future tax increases and inflation, Congress can unleash greater investment.

Legislators should work together to avoid a future fiscal crisis by reducing spending and adopting prudent budgetary reforms as they confront the debt limit this year.

The Supreme Court has ruled that California may prohibit the in-state sale of pork raised out of state by methods it deems inhumane, rejecting a constitutional challenge raised by pork producers who had argued that the law would badly disrupt the economies of other states. In so doing the Court appears to have significantly whittled down the practical reach of the so-called Dormant Commerce Clause, a clause that has been drawn skepticism from Justices including the late Antonin Scalia, Clarence Thomas, and Neil Gorsuch. While the new decision is a complex one with multiple opinions, it appears to give the green light to a wide array of state environmental and consumer regulations that may inflict significant economic harm on other states but do not discriminate between in-state and out-of-state producers.

Cato had filed a brief urging the Court to grant review in this case to bring some clarity to the application of the Dormant Commerce Clause, given the highly interstate nature of the market— almost all pork Californians consume is produced in other states—and the substantial burdens of the measure, which include the prospect that California agricultural agents will travel around the country to ensure that farmers in other states comply with California law. Ilya Shapiro, writing with Frank Garrison in 2017, described the clause as “the idea that states can’t impose regulations that impede interstate commerce even if Congress hasn’t expressly forbidden them to do so.…While the commerce clause has been invoked since the New Deal as a warrant for nearly unlimited federal power, its inverse actually seems more faithful to a founding document concerned with the free flow of commerce throughout the nation.”

As Jonathan Adler writes, “the decision complicates the already questionable ‘Roberts Court is pro-business’ narrative, by demonstrating (yet again) that when conservative jurisprudential commitments conflict with corporate interests, the former prevail. Combined with decisions such as Virginia Uranium v. Warren, National Pork Producers shows that business groups cannot depend on conservative justices to support their challenges to state regulations.”

And a comment from Jeff Kosseff: “Until yesterday, I had been somewhat optimistic about using the Dormant Commerce Clause to avoid a state-by-state patchwork of internet laws. But the National Pork Producers opinion has pretty much eliminated that optimism.”

Cato has filed briefs in Dormant Commerce Clause cases involving state rental car taxes calculated to burden out-of-staters, Colorado’s attempt to regulate how power imported from out of state is generated, and Tennessee’s attempt to reserve the issuance of liquor licenses to those who have lived in the state for a long time.

ReasonTV and parody musician Remy have teamed up on a new video poking fun at the Jones Act, and the result is nothing short of hilarious:

Taking its inspiration from the Beastie Boys’ 1994 song Sabotage, the ReasonTV/​Remy video features a Canadian-flagged tanker attempting to transport supplies from Florida to Puerto Rico in the wake of a hurricane. Blocking the tanker’s ability to offload its precious cargo, of course, is the Jones Act, the 1920 protectionist shipping law that restricts domestic waterborne transportation—such as between Florida and Puerto Rico—to vessels that are U.S.-flagged, U.S.-built, and mostly owned and crewed by American citizens. Tankers (or any other type of vessel) registered outside the United States—or American-flagged but simply built in a foreign country—are only allowed to transport supplies to U.S. ports if their cargo was loaded abroad.

Although a brilliant bit of comedy, the video brings to mind the absurd situation that occurred last year following Hurricane Fiona when a foreign-flagged tanker sailing from Texas to Amsterdam attempted to unload its cargo of diesel fuel—needed for generators in the midst of widespread power outages—in Puerto Rico. Initially unable to do so because of the Jones Act, the tanker finally received a waiver from the law following heavy pressure on the Biden administration.

That’s the good news.

Unfortunately, lobbyists from pro-Jones Act groups responded by inserting language in last year’s National Defense Authorization Act that placed new restrictions on waivers of the 1920 law. Among the changes to the waiver process were a prohibition on waivers for vessels already carrying cargo—such as ReasonTV’s hypothetical Canadian-flagged tanker laden with supplies from Florida—as well as a requirement that waivers be granted no earlier than 48 hours after a waiver request is published. Under these restrictions, the foreign-flagged tanker that delivered diesel fuel to Puerto Rico last year would be ineligible for a Jones Act waiver.

ReasonTV and Remy have produced a deeply funny video, but the costs and consequences of this law are certainly no laughing matter.

This article appeared on SubStack on May 12, 2023.

Unless Congress cuts spending or raises taxes in the near future, the federal government will hit its debt ceiling later this summer. At that point the United States will either default or pursue “extraordinary measures,” such as minting a trillion dollar coin.

President Biden wants a “clean” increase in the ceiling; Republicans want a substantial cut in spending in exchange for raising the limit. In all likelihood, the two sides will appear to make no progress until the last second before default; they will then jointly announce a compromise that both sides portray as victory.

My view is that the United States should eliminate the debt ceiling entirely.

The potential benefit of a ceiling is that it might restrain spending. The U.S. fiscal situation is on a path to insolvency, and slowing expenditure growth—not raising taxes—is the only effective way to address this issue.

Yet it seems unlikely that “process reforms” like debt limits will restrain spending. During recent negotiations, both sides ruled out cuts to Social Security or Medicare, even though these programs are the most important causes of excess expenditure growth.

The debt ceiling, moreover, has downsides. At a minimum, it generates unneeded uncertainty every few years whenever the debt gets close to the limit.

Worse, the ceiling distracts attention from the fundamental question: how can the United States reconcile its limited ability to pay for entitlement spending with the much greater promises it has made for such spending.

Until the nation grapples with that issue, the debt limit is a sideshow. And if the country adopts an affordable path for entitlements, a debt limit is unnecessary.

My oldest child is graduating from college tomorrow, so it has me thinking about our educational journey—which could best be described as eclectic. At various times, we used private school, district school, and cyber charter school. But we ultimately landed on homeschooling. That doesn’t mean they were literally learning at home every day. My kids participated in co-ops, hybrid classes, dual enrollment, athletics, and more. This gave them access to experts and plenty of social time.

It can be scary taking charge of your children’s education—I remember feeling very relieved when my oldest received her first college acceptance. But today there are more resources than you can imagine to help you create the best education plan for your children’s individual needs and interests. And with the growth of education entrepreneurship, the situation is getting even better.

For starters, you don’t have to go it alone. The growth of microschools and hybrid schools means there are flexible learning options in many areas that previously had none. One goal of the Friday Feature is to help parents see the diversity of educational options that exist. To see what’s available in your area, you can search online, check with friends and neighbors, or connect with a local homeschool group.

If you don’t find what you’re looking for, the good news is that there’s also more support for people looking to start new learning entities. The National Microschooling Center is a great starting place if you’re considering creating your own microschool. The National Hybrid Schools Project at Kennesaw State University is also a tremendous resource. There are businesses—like Microschool Builders and Teacher, Let Your Light Shine—whose focus is helping people navigate the path to education entrepreneurship. And grant opportunities, like VELA and Yass Prize, can help with funding.

We were fortunate to be in an area with a strong homeschool community and therefore had plenty of activities to choose from. But I’m still a bit jealous when I speak to parents and teachers each week and hear about the amazing educational environments they’ve created.

There’s also an abundance of online resources available, from full online schools to à la carte classes in every subject imaginable. If you like online classes but want an in-person component, KaiPod Learning might be just the ticket. These are flexible learning centers where kids can bring whatever curriculum they’re using and work with support from a KaiPod learning coach. There are daily enrichment activities, like art, music, and coding, as well as social time.

One of the best parts of taking charge of your children’s education is that it puts you in the driver’s seat. If your children are advanced in particular subjects, they can push forward at their own pace. In areas where they struggle, they can take their time and be sure they understand before moving ahead. (One potential downside is that this takes extra discipline and can be challenging. But it’s tremendously beneficial overall.)

These nonconventional learning paths can be great for kids who don’t want to go to college, too. Flexible schedules free up time to pursue a trade, music, performing arts, sports, agriculture, and more. As kids get older, they can increasingly take charge of their own education. This lends itself to developing an entrepreneurial outlook, which is vitally important in a world where technology and public policy are constantly changing the workforce and economic landscapes.

“One size doesn’t fit all” is a common saying among school choice supporters. But this is more than just a slogan. It’s an acknowledgement that children are unique and should have access to learning environments that work for them. Public policy is catching up to this understanding—six states have passed some version of a universal education savings account that will let parents fund multiple education options.

If you’ve considered taking the reins when it comes to your children’s education, it’s a great time to act on it. Whether you choose a full-time, in-person option, a hybrid schedule, or full homeschooling, you’ll be able to customize a learning plan that works best for your kids and your family. And you may even become an education entrepreneur yourself and end up with a fulfilling career that you never expected.

In the wake of the March 2023 failures of Silicon Valley Bank (SVB) and Signature Bank, federal agencies released a flurry of reports on April 28. The Federal Reserve (Fed), the Government Accountability Office (GAO), and the Federal Deposit Insurance Corporation (FDIC) each released their own reports to explain what happened.

Just days later, the FDIC released another report. It was unsolicited, but it offered Congress multiple options for reforming federal deposit insurance.

In a previous Cato at Liberty post, I discussed the Fed and GAO reports. Today’s post focuses on the two FDIC reports. (I’ll have at least one more post after I digest the FDIC’s special assessment proposal.) As the primary federal regulator for Signature Bank, the FDIC took some of the blame for supervisory failures while also blaming Signature’s management. (The Fed was the primary federal regulator for SVB, and they basically took the same approach.) The FDIC’s report says that:

The root cause of [Signature Bank’s] failure was poor management. [Signature Bank’s] board of directors and management pursued rapid, unrestrained growth without developing and maintaining adequate risk management practices and controls appropriate for the size, complexity and risk profile of the institution.

The trouble with this statement, of course, is that the FDIC is supposed to be making sure that these sorts of problems don’t occur. And unlike the Fed, the FDIC doesn’t have the (incredibly weak) excuse that Congress rolled back regulations, making it more difficult to address problems at Signature. Even worse, as the GAO report points out, the FDIC has a long history of failing to remediate management and liquidity problems at Signature.

Worse, in 1991, Congress explicitly charged the FDIC with taking “prompt corrective action” to “resolve the problems of insured depository institutions at the least possible long-term loss to the deposit insurance fund.” This legislation was inspired by the regulatory failures that led to the Savings and Loan crisis when approximately 3,000 federally insured institutions failed. The statute gives the FDIC a great deal of discretion to determine – and then to act based on that determination – whether a bank is “engaging in an unsafe or unsound practice.” (In fact, Congress gave the FDIC broader authority to stop banks from engaging in unsafe or unsound practices in 1966.)

So, it’s a bit audacious for the FDIC to blame anyone other than their own agency for Signature’s alleged managerial failures. Even if Signature’s management took too many improper risks, for instance, it’s still on the FDIC because they allowed that activity to take place.

Audacity doesn’t quite describe what it takes, though, for the FDIC to release another report, just days later, essentially asking for even more regulatory authority and an expansion of the agency’s coverage. And to also suggest – in that report – that Congress consider reviving something like Regulation Q, the interest rate controls that contributed mightily to the Savings and Loan crisis as interest rates and inflation took off, is almost beyond comprehension.

Regardless of what they decide to do, Congress should always start with this basic fact: The FDIC is promoting an expansion of deposit insurance after a so-called banking crisis tied to a handful of large uninsured deposits.

And it simply isn’t the case that the typical person, business, or even payroll service business, relies solely on the ability to use uninsured deposits. Even the FDIC report acknowledges that less than one percent of all accounts are above the FDIC insurance limit, and that everyone has access to tools to skirt that limit. (The report even acknowledges that some of those uninsured deposits may not really be uninsured. They could, for example, be part of cash management tools that use sweep accounts.)

But that’s still not enough for the FDIC. According to the logic in their report, it’s unsafe for anyone – or any business – to have uninsured deposits. Uninsured depositors are dangerous to the financial system, supposedly, because those account holders are the most likely to move their money out of a bank (i.e., to run) they fear might fail. Yet, somehow, these supposedly super sensitive information gathering deposit holders are incapable of taking advantage of all the existing alternatives to get around the FDIC caps, or to protect themselves using other methods.

If members of Congress fall for that logic, all Americans will pay for it, just as they pay for the existing FDIC insurance system.

Today, I have new a piece in National Review: “Turkey’s Election Scenarios: The Good, the Bad, and the Scary.”

It is about the fateful elections that Turkey will have this Sunday. (Which we will also discuss tomorrow at a Cato Institute Policy Forum: “Turkey’s Centennial Election: What Is at Stake?”)

Despite the dramatic deterioration in Turkey’s freedoms and rule of law, I explain, the elections are still real and competitive:

Turkey is not a Russia, China, or Turkmenistan, where free elections have never been held; Turks have lived under a decently competitive, free electoral system since 1950. All votes are counted openly in the presence of opposition-party representatives and independent observers, so it is not easy to cheat. That is why Erdogan’s ruling AK Party grudgingly lost the country’s two biggest cities, Istanbul and Ankara, to opposition mayors in 2019.

Which is why the presidential race between President Erdogan and the opposition candidate Kemal Kilicdaroglu is very tight. I see three possible scenarios — the good, the bad, and the scary:

The good scenario is that the opposition wins decisively, and Erdogan has no choice but to concede.

The bad scenario is that Erdogan wins decisively, as he has won every other election in the past two decades.

The scary scenario is a dispute over the results, which could escalate unpredictably in a country that is already extremely tense. This is possible especially if Kilicdaroglu wins with a very small margin, and Erdogan responds by taking a page from Donald Trump’s 2020 playbook. His hawkish interior minister has already prepared the way for this by calling the election “the West’s political coup attempt.”

Read more in National Review.