We are recklessly squandering what may be our last chance to put government finances on a sustainable footing in an orderly manner that minimizes pain. And I haven’t even told you half of it yet.
real gross domestic product It grew by 2.5% last year.However, the national debt growth accelerated, rising from 96.9% of GDP to 97.3% in 2022. Just five years ago it was 79.2% of GDP. It is expected to reach 99% next year. The Congressional Budget Office believes that by 2034, that rate will be 116% and rising.
Even this number is too optimistic.
The Social Security Trust Fund is scheduled to run out in 2034, and in theory, the law requires that benefits be cut by about 25 percent to make ends meet. Indeed, Congress will be under intense pressure to block these cuts. But CBO’s projections are based on “current law,” so 116 percent is far too optimistic.need to add at least 1 percent of GDP It will increase to this number in 2034 and increase by 1% every year thereafter.
That’s not all. Medicare’s trust fund is scheduled to run out three years early in 2031, and the CBO assumes that hospital payments will be cut as well, but we shouldn’t bet on that happening. It would be better to add 1.5 percent of GDP, which needs to be found somewhere.
And of course, underlying all these numbers is an even more heroic assumption. That means we won’t experience another crisis that will cost us too much debt. As the 2008-2009 financial crisis and pandemic made clear, this is never a safe bet.
These numbers are still not unmanageable. America faces an even more difficult situation. In 1945, the deficit was 21 percent of GDP, and the national debt held by the people exceeded 100 percent. By 1957, the budget was in surplus and the debt-to-GDP ratio was cut in half. And you don’t have to reach a surplus. If the budget deficit can be brought down to, say, 1% of GDP, inflation and economic growth will gradually reduce the debt to a manageable level.
But this will be more difficult for us than for our mid-20th century ancestors. They were a young and growing country, but our country is aging and has many expensive obligations to its elders. They enjoyed expanding trade and investment opportunities in a world recovering from war. We face increasing protectionist pressures at home and abroad.
The most important thing is that they were serious, and we are not.
In the years following the financial crisis, economists and experts debated whether governments were borrowing too much or too little. Supporters of more stimulus argued that the austerity caucus was mitigating the economy well below its capacity and causing unnecessary suffering to the underemployed and unemployed. They argued that they should run deficits while money was cheap and pay them back when the economy improved.
They have a point. Losing your job is one of the worst things that can happen to people in modern society, and the damage often lingers long after you find a new job. Preventing unemployment, or at least reducing it, makes people much better off and, in theory, permanently increases the productive capacity of the economy.
The biggest counterargument from austerity advocates was that the money wasn’t being spent in 1945, when the spirit of fiscal responsibility was prevalent, in theory. We were spending money in the 21st century when its spirit was broken, so when the boom finally arrives, there may not be any politicians willing to make the sacrifices necessary to get the budget back on track. There were quite a few. Rather, debt will accumulate until some crisis forces policymakers to do something, and then people will suffer even more than a downturn in the labor market.
There is no such crisis now. But nevertheless, we are doing everything we should do if we want to cause a crisis. In other words, instead of productively investing in the future, we are increasing our debt for normal government operating costs. When we cut spending or raise taxes, it’s usually not to make something we’re already doing financially sustainable, but to fund something new, like Obamacare or the current administration’s green energy policies. It’s for a reason. This means that by the time we need to restore some kind of balance, we have already exhausted the politically most favorable options.
If we can’t make ends meet now that everything is going well, how will we cope in the future when rising debt could push up interest rates, crowd out private investment, and worsen budget calculations? God forbid, what would we do if another crisis arises and we need to make good use of our borrowed money and no one will lend us a reasonable interest rate? ? Few people in government ask these questions.
Our national debt is equal to the sum of everything we Americans produce in one year, but President Biden is not talking about fiscal health.what he is talking about Large childcare subsidy.
Interest on our national debt is equivalent to 2.4% of GDP, and President Donald Trump’s advisers have hinted at the possibility of further tax cuts, likely as before without cutting spending enough to pay for them. will be established.
If this is the best that Americans can do in the best of times, it inevitably leads to disaster when things go wrong.