“If something cannot go on forever, it must stop.” In economics, this is known as Herb Stein’s law. We ignore it at our peril.
In the 2000s, economists and other observers pointed out that real estate prices could not continue to rise at such a blistering pace. They didn’t. The entire global financial system was put at risk when that unsustainable trend came to a screeching halt.
At about the same time, financial observers pointed out that the Greek government was borrowing recklessly. That debt binge ended, too. The ensuing euro crisis nearly brought down Europe’s monetary union.
Every financial crisis I am aware of has been presaged by warnings that some trend cannot go on forever. So it is with our growing federal debt. A handful for common-sense, independent leaders in Congress can help wrestle America’s dangerous debt under control. They don’t have to be financial geniuses to strengthen America. They need only understand the dire debt figures and help Congress make some hard decisions.
The numbers speak loudly. The Congressional Budget Office’s long-term budget outlook now shows the national debt climbing to nearly 150 percent of GDP by 2040, a level of indebtedness that far exceeds where the U.S. was at the end of World War II.
Both political parties have been complicit in getting to this point. The Democrats have refused to tackle entitlements, which are the major driver of increased government spending these days. If we do not reform how we pay for health care and modify Social Security, entitlements will eventually consume the whole federal budget.
The Republicans have cut taxes at a time when we need more government revenue, not less. The notion that these tax cuts will pay for themselves, let alone increase revenue, is chimerical, as I have written repeatedly in the past.
The economy feels strong right now. That’s exactly what makes the debt so dangerous. Remember how good those rising home prices felt in 2006? Here are just a handful of reasons we should do something about the debt situation, sooner rather than later.
- America’s chronic deficits are a massive transfer of wealth from the young to the old. We are literally spending lavishly on ourselves and leaving the bill for future generations.
- This level of debt is potentially destabilizing. Things that cannot go on forever sometimes stop abruptly—like when investors suddenly begin to wonder if they are going to get all their money back (e.g. the 2008 Financial Crisis).
- America’s huge budget deficits leave less room to fight the next recession. Basic economic theory says we should run surpluses in good times and deficits during downturns (as we cut taxes and increase spending to reinvigorate the economy). But deficits during boom times? That one is not in the textbooks. Our huge deficits will make it hard to cut taxes or increase spending the next time the economy needs some stimulus.
- This mounting debt is costing us a huge amount. We will soon be spending more on federal interest payments than we spend on national defense. And for all that, we get . . . nothing. No highways. No education. No research on cancer or dementia.
What can common-sense, independent leaders do about all this? A tremendous amount—because they do not start with the electoral baggage that the two parties bring to this problem.
Republicans typically promise never to raise revenue (and more tax cuts!). That’s how you win a Republican primary.
Democrats promise not to cut entitlements—and sometimes even to expand them (free college!). That’s how you win a Democratic primary.
Unfortunately, that is not how we fix America’s fiscal problems. The two parties arrive in Washington having sworn off the key ingredients necessary for any budget compromise. They campaign on not solving this problem.
I appreciate that balancing the budget will not be easy. For years, we have been paying less than we should and getting more. To make the numbers work, we will have to pay more and get less.
That said, we know what the parameters of a budget compromise will look like because numerous bipartisan commissions (the Simpson-Bowles Commission, the Domenici-Rivlin Debt Reduction Task Force) have made sensible recommendations: raise the retirement age for Social Security; cap federal discretionary spending; close loopholes in the tax code; raise the gas tax; restrain the rate of growth in health care spending; and so on.
These discussions will not be easy—but the nature of what we need to be talking about is crystal clear. This may be the issue where independents can have the most profound influence in Washington. They would arrive without having made promises that are incompatible with fixing the problem.
There is a sad irony in all this: The one place where Republicans and Democrats have worked together is in running up the federal debt. Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, stated recently: “Bipartisanship means making compromises and tough choices for the good of the country as a whole, not paying off each other with trillions of dollars in goodies and passing the buck, leaving the nation weaker.”
How do we change that? By electing independents. Because if we keep electing Republicans and Democrats who promise not to solve the problem, they probably won’t.