The Wall Street Journal reports that whoever wins the presidency in November “will enjoy far less latitude to spend money or cut taxes than any president since World War II.”
“Not since Harry Truman will a new leader enter office with a higher debt-to-GDP ratio. And for the first time in decades, the new president will face the specter of widening deficits despite a growing economy.
“’The next president, no doubt, is going to be very constrained,’ said Rep. Charlie Dent, a Pennsylvania Republican who sits on the House appropriations committee and hasn’t endorsed anyone for president.
“A President Trump or Clinton could try to barrel ahead anyway, of course. But Mrs. Clinton, in particular, is likely to be checked by the opposing party’s control of at least one chamber of Congress. And that doesn’t take into account what would happen if the U.S. enters another recession, when falling revenue would send deficits even higher. In that scenario, the Federal Reserve and other central banks would have less room to respond if interest rates remain near today’s ultralow levels.
“Due to this erosion in the ‘policy arsenal’ available to monetary policy makers, ‘the burden for any classic Keynesian response would have to fall more on the fiscal side, which is why the political constraints on action are more scary,’ said Timothy Geithner, President Barack Obama’s first Treasury secretary.
“Those fiscal constraints, though, are increasingly palpable. Spending on discretionary programs, or those that lawmakers fund directly every year, is being crowded out by spending on what are known as entitlement programs, including Medicare and Social Security. About two-thirds of all spending—including interest payments on the national debt—is in that latter category, compared with about half in the 1980s. Just one-third of spending is actually set by Congress and the White House through annual spending bills.”