This is the Cato Daily Podcast for Thursday, April 18th,

2024. I'm Caleb Brown. When a fiscal crisis hits, history suggests

the policy response will be terrible.

For a variety of basic economic reasons, it's better to simply avoid the crisis.

The unsustainability of the federal budget is a long time in the making and there are ways to avoid this fiscal doom loop that is currently looming.

But acting sooner than later is key.

Cato's Ryan Bourne details his new Cato paper out today. I can remember the

mid 90s, Ryan, you might have been a little too young for this, but we talked about

deficit reduction and when you reduce deficits essentially what you are doing

is slowing the rate at which you are accumulating debt. This is not how normal human beings think about it, but there is just a lot wrong with the

debate that we have about spending, borrowing, and taxing on the specific issue of the gap between what we spend

and what we tax. Help us understand just broadly how you see it.

Well, the federal budget deficit is historically extremely high at the moment.

On current policy, annual deficits will grow to about 2.6 trillion per year over the next decade.

And actually if you look at 2023 as an example, once you account for kind of one-off-budget

shenanigans, we borrowed around 2 trillion dollars,

that's about 7.4% of GDP. Now that might not sound, you know, be meaningful to most people,

but that was the highest level of borrowing relative to the size of the economy

outside of recessions or wars since the 1930s.

We're borrowing dramatic amounts for kind of peace time and being outside of acute recessions. And that comes on top of a period where

we've borrowed vast amounts to deal with the financial crisis because of COVID-19 and ongoing structural deficits, the gap between day-to-day government spending and revenue.

So you add this all up and we're still borrowing vast amounts on top of a debt level that is about the highest that it's been since the aftermath of World War II.

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