WASHINGTON – With almost no comment by national leaders, major media, economists, financial analysts or federal budget experts, the Unites States’ national debt just reached and then passed the $18 trillion mark.
$ 18 trillion, and counting
Yes, that is $ 18 trillion. And, yes a trillion is equal to a thousand billions (1,000 X 1,000,000,000); or, if you prefer, a million millions (1,000,000 X 1,000,000).
You multiply this nice figure by 18 and you have the total obligations of the United States government. This is horrendous. And it keeps getting worse.
While it is true that the Federal Budget deficit has gone down substantially in the last few years, we are still in the red, year after year. Smaller deficits are certainly better than larger ones. But a deficit is still a deficit. The national debt keeps growing, even though a bit more slowly. Indeed, the trend is the same: more red ink, year after year. Hence the $ 18 trillion milestone we just passed.
A non event
In all this what is most disturbing is the general indifference that accompanied getting to this amazing $ 18 trillion debt figure. The President said nothing. And nobody else in a position of authority said anything.
This is a non event. Unfortunately, this indifference sends the wrong message. The implicit message is that these days the growth of our national debt has magically become a normal, physiological development, with no harmful effects. “We, the experts, know what it is. Not to worry. This debt is OK. The situation is totally under control”.
Sure enough, the experts appear to be right. There is no sign of an impending catastrophe. This is not the Fall of 2008, with major Wall Street financial institutions just one step away from the abyss. None of that. In fact, the opposite. Most international investors keep buying US Treasury Bonds. America has always been a strong country. Therefore it will pay its debts. Right?
And yet, the idea that the national debt can grow, and grow, essentially for ever, and that this will have no consequences because we can handle it, is insane.
That said, it is really hard to have a rational conversation about the impact of a fantastically large and growing national debt, because it is not very clear, as it manifests itself over time, in small, incremental changes.
No money for discretionary spending
The most obvious consequence is no more money for discretionary federal spending. Due to unchanged entitlement spending patterns, these days most of the tax revenue that the US Federal Government takes in goes to pay for Social Security, Medicare, Medicaid, defense spending and interest on this huge debt. Now, everything else being equal, even assuming very low-interest rates, as the national debt keep getting bigger, we spend more of the little that is left to pay interest on this debt.
As a result of existing spending patterns regarding entitlements and defense, there is almost no money left for any other type of spending: medical research, space exploration, new infrastructure, or education. This is what the budget analysts call “non defense discretionary spending”. As the cost of debt service grows a bit every year, there is less and less for discretionary spending. The problem is that the consequences of not investing in our future are not immediately apparent. They do not jump at you.
Yes, wise people know that if we fail to invest in our future, in the long run we get a weaker country and economic stagnation. But since there is a very long road from here to there, it is very easy to ignore or dismiss early warning signs. We are going downhill. But it is a gentle slope, not a precipice. As an economist put it long time ago: “Debt is not like a wolf at the door. It is more like termites in the basement”.
Got that? You do not see the debt problem until it is too late.
Nothing will happen
Because of all this, those who point out the negative long-term consequences of a growing debt are ridiculed as doomsayers who keep predicting a catastrophe that has yet to happen, and probably never will.
And elected leaders specialize in ignoring hard realities. After all, they are not concerned with what the country will look like 20 years from now. Their level of concern is dictated by the political calendar. As long as there is no catastrophe between now and the next election, all is well.
Well, all the others have no such excuses. And only a stubborn case of denial can explain our collective ability to ignore reality, and keep insisting that a suffocating debt does not matter.
Look at countries with high debt
Just look at Greece, Italy, France or Japan. Even if we leave Greece out, because it is a rather extreme case, all these heavily indebted countries –in Japan the national debt is now 240% of GDP! — are in major trouble. These are stagnating societies in which it is impossible to launch anything major, in large part because of the weight of the debt burden. And what is the source of their debt? Extremely expensive, inefficient public sectors and out of control social spending –read entitlements– no longer affordable due to higher costs and changed demographics.
America is different
Many would argue that America is different. Yes, we also have large entitlement programs and a huge national debt. But this is not Italy. Our economy is bigger, and much more resilient. Just look at the most recent numbers. We keep adding jobs, while GDP is growing. Wall Street is at record highs. So, where is the problem?
Well, the problem is that, while right now things are getting a lot better, our long-term trend is not that good. We used to grow at about 3% a year. Now it is more like 2%. That is 30% less growth, year after year.
The number of Americans now in the active work force is at a historic low. Productivity gains are negligible. And a larger number of older Americans will mean even higher entitlement spending, as we move forward. And, yes, we just passed the historic $ 18 trillion debt milestone, while there is not even a shred of a plan to change our social spending patterns that are at the root of all of this debt.
Bending the curve requires a political agreement
The only way to get the US debt under control is to stop having federal deficits and start generating surpluses that will allow us to slowly but steadily retire this massive obligation. We do not need miracles. But we need a little bit less debt every year.
However, such a transformation would imply bending the federal spending curve. And this could happen only via a major political agreement on real federal entitlements reform. But there is not even a small sign of this happening any time soon.
In the meantime, we keep going down the gentle slope.