Perhaps this comes from too much time spent on airplanes but this week’s White House budget projections reminded me of nothing more than a pre-flight safety video. The voiceover tells passengers to “stay calm and listen for instructions from the cabin crew in the event of a sudden loss of cabin pressure” as eerily placid actors carefully strap on their oxygen masks or inflate their underseat life vests before attending to their children.
Of course this bears no resemblance to the unbridled panic that would ensue if a hole opened up in the fuselage at 35,000 feet. Perhaps US government economists operate on the same principle as airlines who refrain from showing videos of passengers trampling one another underfoot as the cabin fills with smoke. On the current fiscal trajectory, investors in America’s Treasury market will rush madly for the emergency exits one of these days, but official forecasts assume they will never even break a sweat.
Of all the variables in any budget projection – economic growth, taxes, foreign military engagements – the thorniest is what Treasury investors will do. Discretionary items and even entitlements like social security can be cut but interest must be paid no matter what and, in the absence of perpetual quantitative easing, the government must pay what the market deems fair.