Fact and Fiction Behind Too Big to Fail
The biggest issue facing the nation is one that no candidate mentions. Maybe all the antics and hate-mongering are a ruse to distract voters from the silence.
The issue is our national debt burden. A dull topic perhaps, or involving math, or maybe involving time or thought. Certainly not fun or entertaining.
Let me counter all those excuses. Do you love your children? Of course. Passionately. Do you cherish the democracy we all enjoy, imperfect as it is? Is national defense important to you? Economic growth? How about your social security if you’re age 70 or younger? Or taking care of the elderly over the next two decades? Or believing that our government should spend more to stimulate the economy?
None of these are dull or small issues, and they are exceedingly personal. Yet they all rely upon our national ability to borrow. The outstanding debt is humongous, which we do frequently hear. But trillions of dollars just don’t compute.
What if the personal side of the story really isn’t that complicated? Would you take a few minutes to consider it? I’ll focus solely on the simple, personal picture.
I stumbled into the simplicity while noodling on another question. It’s what’s been on this ordinary citizen’s mind since the collapse of the financial bubble: stimulus — government spending that boosts the economy. We’ve watched the battle in the media between economists who demand the government spend more and those who claim we should spend less. My simple question was this:
“Back in the Depression, when economists adopted the Keynesian theory that governments should stimulate their economies in a downturn, in other words spend, how much debt did our nation have per person?”
I of course knew I had to remove inflation from the picture, so I used a Department of Labor inflation calculator and took inflation out of the numbers. Here is what happened to our ability to borrow over the decades between 1930 and now. Just click on the link.
As can be seen, each baby born into this nation in 1930 was welcomed with his or her own national debt of about $1,800. He or she could rest assured, despite the Depression, that their government debt was only 18% of the nation’s economic output. Fast forward to now, or at least to the close of government business on September 30, 2015. All the babies born since then were welcomed with over $56,000 in debt per baby. Or elementary school child, or college grad, working adult or retired senior. Each of us. And it’s now a debt pile larger than our national economic output.
That’s debt we have to pay interest on or our creditors won’t lend us more. Not a great place to be when one wants to borrow for healthcare, infrastructure, defense, social security payments, or other important spending categories.
Some policy wonks say we’ve been here before. A debt load greater than our economic output. They neglect, first of all, to mention that the government borrows to “stimulate” the economy. Second of all, the high spending resulted from world wars. Those wars ended and the spending on them stopped. The nation, even the Republicans, increased taxes and paid down the debt. In recent years it’s grown and continues to grow due to entitlements, financial bailouts and spending on anything that folks want done and prefer to have the government do.
What makes this situation so personal? We need income earned through jobs to pay the interest on the debt. But we also pay for all other household expenses out of the same income — food, housing, transportation, clothing and education. And state and local debt, too, especially in my state. This isn’t a crisis you’d ignore in your family budget, yet it’s there. We need to talk about it.
Think there’s got to be a wealthy person out there to cover any spending we might incur? Just take a look at how the debt per person rises when the burden shifts to working age citizens. 20% of the population is under the age of 15, and 15% are over 65. That leaves about 209 million people of working age. Dividing the national debt by that smaller number increases the debt per potentially working person to $86,000. What if we left out the unemployed or stay-at-home mothers? It would be even higher. So what might it look like with just the top 1%?
Then there’s the issue hinted at in each year’s Social Security Trust Fund trustee report to Congress. As the Baby Boomers like me whittle down the Social Security Trust Fund, the fund balances, which have been invested in U.S. Treasury bonds, are needed to pay benefits. That’s been the law for decades. The U.S. Treasury has to hand over the cash and go borrow elsewhere. The percentage of foreign holders of our debt has risen to about a third. It’s not even a question of how much leverage they might have over our nation. It’s whether they will even have lots of money to keep lending us. Europe, Russia and China have their own economic pressures. Who’s the gambler if we allow this to continue?
Take a dollar out of your wallet and look at it. It has no gender, race, religion or political orientation. We all share this resource equally, and it is a vital part of our daily lives.
Politicians have incited negative emotion ever since they rose out of the human crowd. The world is more complicated, interconnected and frightening. It’s therefore more important than ever to keep our cool, keep it simple and focus on priorities. We all have our hands in this government cookie jar from Wall Street through Main Street to our states and their government debt. If anything positive comes from this election season, hopefully the best change is that we start to hear each other’s concerns and try to find ways to compromise on spending. Nobody will feel they’ve won their individual battle, but we as a nation won’t lose the whole war.
Reducing this debt burden needs to be Priority Number One. Otherwise, what are we doing to our kids? And to ourselves as a nation?