Do you see that flare – on the far horizon? That flare marks federal debt – and a need to do something about it. This is not the time, not yet, but it is coming. Keep one eye on that flare.
Saving the American economy, after the sudden shock of COVID-19 and lockdowns, has required pedal to metal policy – to stave off bankruptcies with stimulus checks and loans. All that is good, and necessary. We may even need a last stimulus, to restart what stopped cold. But then, we all need to look hard at our national debt.
Some will say, as President Trump proposes more rescue spending that borrowing is part of life. That has certainly been true for the federal government, especially as debt accelerated in the mid-1960s, and then accelerated again in the 2000s.
Today, our federal government owes $26 trillion dollars, a number that boggles average minds like mine. If you doubt that number, look at the “US debt clock,” then consider the long-term impact of such massive debt. See https://usdebtclock.org/.
For historical perspective, wars and economic crises are expensive and tend to produce debt. Over the past 20 years, we have experienced two wars and two downturns, with COVID-19 the third and most severe economic downturn.
History tells us debt is used to bridge periods of instability, insufficient liquidity, and societal uncertainty. Debt is how we finance living standards during such periods and costly wars – and all wars are costly.
Not surprisingly, unpaid federal debt before World War I was several billion dollars. By 1950 – after two wars and a depression – US debt stood at $253 billion. The COVID crisis triggered an abrupt economic hit – which has, like it or not, required emergency spending, and thus debt.
But wars and downturns are not the whole story. Starting in the mid-1960s, another source of debt emerged – and it remains the bowling ball in the bag, the chief cause of why we are more indebted than ever before in our history.
The new source of national debt – in a word – was irresponsibility, a combination of irresponsible spending in every decade since 1960, and irresponsible financial management.
Put differently, in the mid-1960s, federal entitlement programs – especially Medicaid – triggered ever-widening federal obligations. The obligations were undertaken with varied motives, some noble and others purely political.
Regardless, successive congresses and presidents have been unable – or unwilling – to initiate program cuts, consolidations, restructuring, or policy fixes to make entitlements solvent.
Worse, as dependence has grown, so has the tendency to keep adding benefits, which has meant more debt. This debt is often disguised, for example when Democrat-controlled states increase health and welfare benefits for illegal aliens and sanctuary cities, or overspend on pension plans, then ask the federal government to backfill.
So, the first reason for mass debt is uncontained, uncontrolled growth of entitlements. If we care about the future, we must address that. Thoughtful policy makers can make entitlements solvent.
The second reason is the idea that, once a honeypot is discovered, it should be emptied. In effect, federal leaders – especially Democrats – have gone beyond crisis and war spending. They are in tax and spend rhythm, making private dollars public to buy constituent dependence.
Democrats are not alone in pushing this slight-of-hand – but they unremitting. Thus, over eight years of Barack Obama, the federal debt rose from $10 trillion to $19.5, effectively doubling.
The comeback is that George W. Bush waged two wars that pushed debt to $10 trillion from $6 trillion, a fair critique. The critique, however, does not excuse runaway spending that followed.
Some will say that President Trump’s 2017 tax cut, which returned hard-earned money to taxpayers, amounts to creating debt by reducing tax receipts – except that is not true. Like Ronald Reagan, who cut personal taxes by 23 percent, Trump cut corporate taxes from 35 to 20 percent, doubling the standard deduction, and repealing the Obamacare tax. The result under Reagan and Trump was explosive economic growth – powering higher tax revenues.
In short, letting people keep their own money creates a multiplier effect, proving supply side economics works. A dollar left in private hands “bounces” – that is, creates up to 16 jobs – while a federal dollar buys a bureaucrat, having produced no saleable goods.
All this explains why we face huge federal debt, poised to fall like on rock on future generations – unless we repay it. If COVID-19 and lockdowns hamper us, the future offers a chance.
What would help right now is a series of three moves – and this may be the time to make them.
First, the economy must reopen – and Americans need to strive to restore robust, unprecedented growth in jobs, income, and output to pre-COVID levels. President Trump has shown how to do this – namely, trust yourself, the free market, and work hard. Then, do not look back.
Second, we need to stop excess federal spending on non-crisis programs. What we do not need is more of what House Democrats are trying to foist on average Americans, spending on unnecessary, unpalatable, power-centralizing socialist programs.
A simple inventory of potential waste in Speaker Pelosi’s last five “emergency” bills, most of which was stopped by Senate Republicans, would embarrass anyone who served in either chamber in a prior era. Nor would they understand those pushing America to veer socialist.
Third, we need to relook entitlement programs, as if debt mattered. We need to hold spendthrift states accountable for overspending, restructure for solvency, match federal financial planning with incentives for private saving, and gradually reduce centralization, taxation, automatic spending, citizen dependence, waste, fraud, and knowing political largess – thus, federal debt.
Today, we are lucky that interest rates are low. That is helping us carry the debt. Still, if they rise, we will see that debt clock spinning so fast the numbers blur. We are also lucky that, once COVID spending passes, President Trump is determined to promote dynamic growth.
Bottom line: Our mission is not to forget the debt. That flare marks the spot – and we need to do something about it. The time is coming. Keep one eye on the flare, as we will soon be there.