Another day older and deeper in debt?

With apologies to Tennessee Ernie Ford, a slightly modified version of the chorus to his most famous song drifted through my mind as I read economist Kevin A. Hassett‘s latest contribution to National Review.

President Obama’s fiscal policies, which have pushed our federal debt to World War II levels and are on track to add trillions more debt over the next decade, promise to deliver an economic future that is different from anything in our experience. Exactly how different is made clear by an alarming new study from Stanford University economist Michael Boskin.

Higher national debt restrains growth through three main channels. Interest payments siphon revenues away from productive activities, government borrowing crowds out private investment, and uncertainty dampens investment. While economists have known about these channels for some time, Boskin is the first to carefully quantify the negative effects of the current debt explosion on our growth prospects. …

… The accompanying chart illustrates Boskin’s key result. The top line is a baseline wherein the U.S. posts annual GDP growth of 2.25 percent, slightly lower than what the administration’s Office of Management and Budget has projected. The dark red line is the growth path we can expect if President Obama’s policies are all enacted and government debt is allowed to grow as projected by the OMB. The pink line is the growth path we can expect if government debt is stabilized in 2016.

The results are stunning. The red line, which describes the future path of the economy if President Obama’s policies are enacted, is fully 30 percent below the baseline by 2050. What is even more disturbing is that Boskin finds economic growth along that path essentially stopping in about 2040. Even if heroic measures are taken and the debt is stabilized in 2016, we can still expect much lower growth over the next few decades as the toll for our heavy spending binge.