This is the second of two essays on of the subject of the sovereign debt of the United States. Our earlier piece discussed the benefits and drawbacks of governmental borrowing to support governmental operations.
The message there, and here, is that irresponsible accumulations of debt historically have had disastrous consequences.
While clearly necessary to meet military and economic emergencies, national borrowing is playing with dynamite and must be managed very carefully. Far too often, legislatures and administrative managers are content with hand-wringing and bemoaning the undefined reality of “too much debt” in the abstract, without defining what and why that is, cynically kicking the can down the road — leaving to subsequent generations the burden of taking care of what bodes to be an economically overwhelming problem.
According to the Congressional Budget Office, national debt will rise from $16 trillion today to $29 trillion by 2027 (as a result of the Trump tax bill), with that debt projected to exceed the CBO’s 2027 forecast for the GDP (the value of all goods and services produced within the U.S. for one year).
Countering the impulse to spend money we don’t have requires the political will to confront both the spenders and those who refuse to recognize the need, so as to match income and outflow. This, in turn, requires that a majority of the people (or at least of the voters) understand and accept as real the essential importance of balancing our country’s institutional checkbook.
If America’s leaders are unwilling or unable to lead the electorate to an understanding of the imperative of paying currently for governmental goods and services, and to act on that imperative through their educated votes, we may ultimately face extremes such as selling our national assets or raising taxes for the specific purpose of debt reduction, with the creation of an inviolable trust fund that cannot be raided for any other purpose, no matter what the excuse.
Thomas Piketty, the noted French economist, has suggested a tax on what he loosely defines as “wealth” to fund such a “debt reduction trust.”
If “wealth taxes,” or other forms of revenue enhancement, turn out to be politically impossible as an option to curb deficit spending to a rational percentage of the country’s GDP, the “solution,” if it can be called that, may of necessity devolve to some form of austerity, with dire consequences in lost jobs, reduced living standards for those least able to afford it, and a death blow to the already struggling middle class.
This is the reality that, for example, Greece has been going through for the last eight years, with public services and pensions cut to the bone.
The consequence of uncontrolled deficit spending has already come home for some American governmental units, for example the city of Detroit and the states of Kansas and Illinois.
In January 2013, Detroit filed for Chapter 9 bankruptcy and found that schools, police, emergency and other essential governmental services were cut beyond the bone before the process could work itself out.
Kansas’ late disastrous experiment with voodoo economics and the “Laffer Curve” — the idea that by simply reducing taxes, especially on the wealthy, you will generate sufficient additional revenues from increased productivity to cover the deficits — led the state to near financial and economic collapse before saner heads prevailed.
Rather than endure such suffering, in the 1970s, after New York was denied a bailout by the Ford administration, the city turned over the management of its finances to an entity composed of financially and municipally astute and disinterested experts who worked the city out the terrible mess the politicians and their grifters and hacks had created.
The Trump administration’s current budget is a prime example of how not to manage debt prudently. At a time of historically low unemployment and high productivity, it has approved a budget that calls for a deficit of $1.15 trillion. The so-called “deficit hawks” in Congress indulged in a bit of the obligatory howling and chest-beating, but in the end went along with a budget that Nobelist Professor Paul Krugman of Princeton described as at best very poorly timed.
This is a time to raise taxes and reduce expenditures on outlandish military programs and adventures so that this opportunity to reduce the budget deficit and draw down the national debt is not wasted.
However, fiscal denial and political expedience have once again prevailed, and the can is being kicked down a dead-end road — a dead end that almost certainly will result in a default on governmental financial and moral obligations which, while perhaps delighting the Freedom Caucus, will have a devastating effect on the global economy.
The time to seize control and management of the accumulating debt is now.
While the arguments and proposals regarding the management of the national debt are as many and irritating as deer flies in July, certain facts are simply inarguable:
• The current, historically low unemployment and high productivity rates will not continue indefinitely, and are certain to come to an abrupt end. The business cycle has not been repealed.
• 57 percent of the $1.13 trillion of discretionary spending in the current federal budget is for the military and — as noted in our previous column — that remaining 43 percent is for everything else other than Social Security, Medicare/Medicaid and interest on the federal debt.
• We spend more on the military than the next nine nations combined.
• You still cannot have guns and butter without paying the price. We went to war in Iraq on credit and without budgeting the cost of the war and the billions needed for healing. The costs of Afghanistan/
Iraq operations alone added $1.2 trillion to the national debt between 2001 and 2009. No budgeting was done for the cost of insured soldiers needing long-term treatments; no budgeting was done for the cost of operations.
• From 2009 to 2015, the top 1 percent captured approximately 52 percent of all income gains, leaving 48 percent to the bottom 99 percent. Further, the top 1 percent now own 38 percent of all assets — more than the total of the combined assets of the bottom 90 percent.
• For most Americans, Social Security and Medicare makes up all or the bulk of all they have for retirement. According to recent figures from the Government Accounting Office, around 29 percent of households age 55 and older have neither retirement savings nor a pension of any kind.
These stark realities demand and deserve more than legislative gridlock and political posturing. They suggest their own resolutions and call urgently for intelligent and disciplined, realistic action.
The Centrists — Allen C. B. Horsley, Edward Frey and Marc Segal — live in Stowe. Email letters to email@example.com.