September 6, 2019

Deficit Dilemma: Time to Get Concerned—Very Concerned.

by Hal Gershowitz

Comments Below

We’re concerned. You should be too. Our biggest concern isn’t just the size of the federal budget deficit, which, according to the non-partisan Congressional Budget Office, will exceed $1.0 trillion a year, really, for pretty much as far as we can see into the future. No, our biggest concern is that no one, absolutely no one, in the White House, anywhere else in the Administration, or in either political party really gives a damn. The tax revenue surplus we were supposed to get from the 2017 tax bill, which was, we were told, going to rev up the economy so much that it was going to pay for itself, has actually petered out. Reduced tax revenues and additional new spending are now driving our nation’s deficits to projected new heights, not reducing them.

We had some trillion-dollar deficits during the Obama Administration, but they were pretty much a function of the enormous “Troubled Asset Relief Program” with which the Obama Administration was saddled to bail out the economy from the credit excesses and the wars that were fought in the prior Administrations. That was acceptable because in economically stressed years governments spend heavily to prop up their economies. Then, in really good times, wise administrations reduce deficits so that they have the fiscal wherewithal to face down the next economic haymaker that comes along. That’s what wise Administrations do.

But we haven’t seen “wise” for a long time. “Kicking the can down the road,” has become part of the American lexicon. Sort of like, “as American as apple pie,” or “it’s the American way” or “make America great again.”  These deficits, of course, simply pile onto the nation’s debt, and the debt owed to the public will, by the end of the next decade, approximate the size of our entire economy. In fact, it’s already about 80% of the size of our entire economy. And that only accounts for the debt our country owes to the investing public here and abroad. On top of the public debt, we owe nearly $3.0 trillion to the Social Security Trust Fund and the Federal Disability Insurance Trust Fund. Yes, we dip into those cookie jars too, as well as a variety of other government agency trust funds. Here’s the thing, as we wrote at the top of this essay, few people really give a damn. It not because knowledgeable people don’t think it’s a problem. It just that they know it will be someone else’s problem.  That would be our kids and our grandkids, and that’s a shame because they are certain to have emergencies of their own to fund with their tax dollars and additional debt.

The prevailing wisdom, or what passes for wisdom in Washington, is that deficits and the debt that follows are not really a problem because our debt is denominated in US dollars and, if push comes to shove, we can always print the dollars we need to pay our debts. And that, dear reader, is the rock-bottom fiscal foundation on which our spend-and-borrow politicians and bureaucrats govern.

The deficits and the debt they cause are major problems and a sad commentary on our sense of responsibility as a nation. We’re not rebuilding our crumbling infrastructure, building beautiful new highways, or bridges or 21st-century airports or rapid rail systems with all the deficits and debt we’re incurring. We are, instead, investing in a wide range of entitlements, building new and stronger military assets, contemplating a new Space Force, and trying to figure out to pay for a Green New Deal.  We are currently spending a billion dollars a day just on interest, and remember interest rates are very low today. Soon the interest on our debt will be larger than what we spend for all government programs combined except for the military.

The deficit/debt spiral is also seriously exacerbated by the confluence of two inescapable realities. Americans are aging into retirement at a very rapid rate. The over-sixty-five population is now double what it was in 1970, while the birthrate in America is declining. Thus, the demands for social security and Medicare benefits will spiral up while the resources to pay for those benefits will spiral down. We need a political candidate who is willing to seriously and intelligently address this issue, and then we need to elect him or her. The sooner, the better.

Fortunately, there are many individuals, investment funds and foreign governments that help keep us afloat by eagerly buying our debt and keeping our interest rates very low. Unless, of course, some of our major creditors, say, like China, which holds over a trillion dollars worth of our debt, and which is our largest foreign creditor, decides for some unfathomable reason that they don’t like us very much and begins to sell the US debt they currently own…but, then again, why would they do such a thing?

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5 responses to “Deficit Dilemma: Time to Get Concerned—Very Concerned.”

  1. susan duman says:

    Usually you describe what’s happening in a political scientist view or like a historian. Not today.
    Your disgust comes through, and I appreciate that.
    That’s my story and I’m sticking to it!

    Your grateful reader,

    Susan

  2. Perry Green says:

    Sadly I have to agree with your analysis, and for far too long
    both parties but more particularly the Democratic party has
    instituted Socialist programs which today is bankrupting a
    formerly rising economy.
    With entitlement programs taking over 70% of the federal
    budget and the interest on the National Debt looming large
    and increasing at an alarming rate one must conclude it’s past
    time for belt tightening, but with the new crop of Democratic
    legislators and POTUS giveaway artists the focus seems to be
    on “Free Stuff” for everyone at least we can get your vote with
    such enticements. Anyone considering voting for the Democratic ticket is asking for more of the same. The current
    Republicans are little better. I sadly remember when both
    Democrats and Republicans elected Statesmen to lead.

    Today we work for the Government rather than the Government working for us.
    PS Unions in Government and Lobbyists have soiled a great system.

  3. Paul lubar says:

    Unfortunately our politicians have no desire to take responsible action on entitlements or the budget, probably because it may be politically impossible and they will be voted out of office. So much for the grand concept of democracy. Consequently, the debt problems will be poorly resolved by debasement of the currency and default and restructuring of debt.

  4. Mike says:

    I agree with Paul

    Practically speaking, embracing any type of austerity is a sure fire way for politicians to lose an election.

    You can’t compete with free and there is absolutely no stomach for any politician to embrace a platform which addresses fiscal responsibility. Thus the prevailing attitude is: “get while the getting is good.”

    Add in the collective ignorance of the voting populace and you have a recipe for disaster. What is truly ironic is that the folks under thirty truly don’t understand what is happening. The baby boomers vote en masse and will make sure they vote to protect their entitlements a.k.a. benefits. This means that raising the age for social security is unlikely to happen even though the average life expectancy is much higher then when the 65 year threshold was created.

    Meanwhile the millennials will obsess about climate change while their proverbial bank is looted. And that is why we are “up the proverbial creek with no visible means of locomotion.”

  5. Michael Gong says:

    Nothing is free. Never has been. Never will be. If you’re not paying, somebody else is paying for you.

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