The CBO Sees the Economic Cliff Ahead – Article by Ron Paul

The CBO Sees the Economic Cliff Ahead – Article by Ron Paul

The New Renaissance Hat
Ron Paul
June 19, 2012

In early June 2012 the Congressional Budget Office (CBO) issued its annual long-term budget outlook report, and the 2012 numbers are not promising. In fact, the CBO estimates that federal debt will rise to 70% of GDP by the end of the year– the highest percentage since World War II. The report also paints a stark picture of entitlement spending, as retiring Baby Boomers will cause government spending on health care, Social Security, and Medicare to explode as a percentage of GDP in coming years.

While the mainstream media correctly characterized the CBO report as highly pessimistic, they also ignored longstanding errors of methodology in CBO estimates. And those errors tend to support arguments for higher taxes and government spending, when in fact America needs exactly the opposite.

As Paul Roderick Gregory explained in a recent Forbes column (, CBO has always applied wrongheaded assumptions inherent in Keynesian economics when forecasting future deficits – no matter how many times both history and economic theory have proven such assumptions incorrect. In particular, CBO seems wedded to two enduring Keynesian myths: First, that higher taxes necessarily increase federal revenue and have no negative effect on the economy; and second, that lower government spending hurts the economy.  Neither is true, of course.

CBO also fails to factor in unexpected wars and expensive foreign entanglements, and we should not assign too much validity to predictive models based on peace. Judging from the actions and rhetoric coming from both parties in Washington, new military entanglements in Syria and Iran may well spike military spending in coming years.

Despite these sobering budget realities, the CBO report suggests that a solution is possible with merely a few minor adjustments in the way Congress handles economic issues. But what we need are not minor adjustments, but rather a fundamental shift in our philosophy of government.  If we could come to our senses about the proper role of government in America, and what level of government interference is appropriate in a free economy, we would quickly find that there is no reason for government to spend so much, borrow so much, and tax so much.

If we simply allowed markets to work free of governmental or Federal Reserve interference, bad debt would be liquidated relatively quickly and malinvestment would be curtailed. Scaled-back regulations would encourage businesses to expand. Lower taxes would jump start investment and spur job creation.

This is not rocket science, it is Economics 101. All it would take is for government to get out of the way. There would be some short term pain, of course, but only by allowing the bubble to burst and bad debt to liquidate can we ever hope to begin building a real economy again.

The CBO report was alarming to most simply because they know neither party will take the steps necessary to avoid eventual fiscal calamity. Instead, despite their rhetoric, both parties want to maintain the fantasy that “deficits don’t matter.” But the CBO report, combined with what is happening in Greece and the European Union, should finally make the undeniable case that economic realities apply even to industrialized first world economies. We must take concrete steps today to avoid having America become the next Greece.

Representative Ron Paul (R – TX), MD, is a Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

One thought on “The CBO Sees the Economic Cliff Ahead – Article by Ron Paul

  1. Every four years the helm of the USS America is given to the most popular and good looking ‘captain’ to navigate our ship to some shore for commerce and prosperity for its crew.
    However this ‘ship’ has been neglected by not following a constitution of remedy and sound practices that would make it safe for passage through many storms. By the pilfering of its stores and stealing of its critical infrastructure, or by diverting resources for ill gained profits for but a few, it is heading for a rocky shore of tragedy.
    Each new captain offered up to those on board, will only move the rudder a small amount to the right or to the left, while keeping the engine running at breakneck speed as the end of the voyage looms quickly, it becomes a destiny of history again, like so many others that have followed the same course.
    There are those who want to destroy this ship so they can build another, a bigger one this time with the flag of all nations under their bridge. And passage on this new ship will cost you and your children dearly for many, many generations.
    Perhaps one will throw out the anchor to slow the ship and others perhaps make plans for a mutiny.? But hark!
    It is the dinner bell and they are serving free lobster and drinks for everyone. One cannot pass up a free meal after all,.. This is a pleasure cruise isn’t it?

    Make mine Ron Paul in 2012

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