Debt matters. If the economy were a network of roads and rail lines, then America’s fiscal policies would be a massive interstate pileup sitting on top of a train track. So write Romina Boccia and Benjamin Paris:
With the gross national debt in excess of $22 trillion—nearly 105% of gross domestic product—and mandatory spending like interest on previous debt, Social Security, Medicare, and Medicaid consuming 72% of current tax revenue, it’s easy to think that America’s fiscal woes have reached their worst point.
But that’s not true. Our debt problems are about to get much worse. [...]
Looking at projections by the Congressional Budget Office—Congress’ official federal scorekeeper—one sees that the federal budget is on a rapid collision course with out-of-control deficits. By 2025, the mere interest payments on the national debt are set to eclipse defense spending. For a household, this would be the equivalent of incurring credit card bills every month that are the same size as their mortgage payments.
Meanwhile, mandatory and entitlement programs are accelerating on auto-pilot, on course to consume the entirety of government revenue in just over 20 years. This would mean that all spending set by Congress—defense, education, welfare, infrastructure, foreign aid, tax expenditures, and national security—would need to be funded solely by deficits, or Congress would need to raise taxes significantly.
Yet it is not merely a bad outlook by the numbers. It’s one thing to see the deficit problem as a current budgetary catastrophe, but it’s another to see it as a roadblock to future success.
As noted by economists at the Mercatus Center and others at theInternational Monetary Fund, high national debt can seriously hamper a country’s economic growth, with creeping effects that result in a sudden and unpredictable crisis. An increase in public debt beyond a certain sustainable threshold is associated with depressed economic growth, with effects worsening when researchers factor in high private debt.
However, higher debt also makes the U.S. a riskier buy for bond markets, and interest rates might eventually soar if investors become more wary of the federal government’s promise to service the debt. Left on the current trajectory, high debt could very well threaten the ability of the American people to sit in the driver’s seat of our economy.
[Romina Boccia and Benjamin Paris, “Averting the Next Fiscal Train Wreck,” The Daily Signal, June 4]
