Trump's cuts won't be enough simply because his policies will undermine economic growth.
If federal spending grows at 3% annually but GDP
also grows at 3%, then spending remains stable and sustainable as a
share of the economy. But if GDP growth lags behind spending growth, the
share rises, creating pressure for cuts or higher taxes.
Trump’s policies will slow economic growth, making any cuts
to programs like Medicaid insufficient. If we were to adopt more creative
policies – like FDR did – any reasonable growth in Medicaid or Social Security
will be incidental. GDP growth determines the healthy and sustainable levels of
government spending for our kids and elderly.
Given America’s aging population, baseline
projections show spending (especially on Social Security and Medicare) rising
as a share of GDP in the coming decades. On current trends, this would
necessitate painful cuts.
However, GDP growth is not simply a given. Policy
affects growth. For example, note the dramatic rise in GDP growth in the
1940s. During this period, FDR’s administration massively expanded R&D,
capital investment, and education spending, fueling not just wartime
production but laying foundations for postwar prosperity.
FDR’s strategic brilliance included:
- Empowering
Vannevar Bush, who orchestrated vast WWII research initiatives
including the Manhattan Project.
- Asking
Bush after the war to redirect R&D toward peacetime quality-of-life
breakthroughs, resulting in the creation of the National Science
Foundation (NSF).
- Funding
university-based research that built national capabilities while
training new generations of scientists and engineers and creating
R&D infrastructure within our universities.
The real question isn’t merely how much we spend on
entitlement programs. It’s whether we make investments in productivity –
R&D, education, infrastructure – that raise GDP growth.
AI and genetic engineering, for example, have the potential
to boost growth as dramatically as WWII-era R&D once did. And history shows
that many of the most transformative breakthroughs – from electricity to the
internet – were not predicted in advance. Future possibilities such as fusion
energy could again lower the marginal cost of energy to near zero, driving
explosive growth across industries.
To offer a budget plan focused only on cuts or static
spending is to react to current trends rather than reshape them.
The most egregious omission in current budget debates is policy to
accelerate growth:
- Cuts
to NSF funding, proposed under Trump, undercut basic research that
fuels private innovation.
- Restrictions
on foreign students and immigrants threaten the flow of global talent
that has historically driven US dynamism.
- Disdain
for trade and global idea exchange risks isolating the US from
emergent technologies and markets.
Given Trump’s policies, his cuts won’t be enough. By contrast,
if he were to embrace the proven policies for enhancing growth that have been
proven by presidents from FDR to Clinton – and looked for creative ways to
build on and extend that – cuts could be unnecessary.
Bottom line
Policies that increase GDP growth determine whether
entitlement spending becomes:
Easily affordable (with robust growth), or
Unsustainable (with tepid growth).
The debate should focus less on how to cut and more on how to grow, ensuring a future where spending choices reflect opportunity and abundance rather than isolationism, resistance to change and zero-sum thinking. Trump's cuts won't be enough as long as his policies are so destructive of economic growth. If he were to adopt policies that were to make us more innovative and open, cuts like he is proposing would be completely unnecessary.
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