Amazingly, proposals to cap federal spending at something like its recent historical average as a share of GDP still seem to be getting serious attention. The linked report, from the Center on Budget and Policy Priorities, explains carefully just how unrealistic this is. But I thought I could add a bit with a broad-brush approach.
The key thing to remember, always, is what the federal government does: it is basically an insurance company for old people that also has an army. Look at a normal year, like 2007 (things are distorted right now by the cost of safety net programs.) What you’ll find is that about half of total spending was on programs for seniors: Social Security, Medicare, much of Medicaid, and other retirement and disability programs. Half the rest is defense.
So why can’t this insurance company with an army make do with the same level of spending it had in 2007?
First and most obviously, the baby boomers are retiring. Look at the old-age dependency ratio. For the past 20 years we’ve had about 21 Americans over 65 for every 100 Americans between 20 and 64. But by 2020 that number will rise to 27.5; by 2030 it will rise to 35. So half the budget now is devoted to programs that will have to serve a lot more people fairly soon.
Add to this the rising cost of health care: even if we take strong steps to control costs (death panels!), costs will surely rise faster than GDP for some time to come.
And one more thing: yes, the deficits we’ve been running since the financial crisis — deficits we had to run to avoid another Great Depression — will mean higher interest costs, too.
This is why the idea of capping spending at historical levels, while it may sound reasonable if you don’t know anything about these facts, is in fact a recipe for savage cuts in federal programs. If that’s what you want to do, OK, go ahead and say that; but the whole point of the cap proposals is, of course, to call for drastic benefit cuts without admitting that that’s the actual goal.