The amount of debt owed by the U.S. government is projected to increase by over $10 trillion over the next 10 years. This sounds frightening, especially for those who may have been alarmed when politicians were pushing for a balanced budget amendment to the Constitution and warning of the dire consequences of out of control government. As a percentage of Gross Domestic Product (GDP), which is a more meaningful measure (because it adjusts for the value of the dollar and the growing economy), the debt is still expected to increase by 20%. This is a remarkable amount, given that we are in a period of relative peace and prosperity. If we were to enter another war, like Gulf War II, or another severe recession (as in 2008-2009), it would almost certainly look much worse.
What is a U.S. voter to think of all this? The main lesson is that politicians will continue to mislead and manipulate us, with the goal of getting us to support a particular agenda (such as cuts to social programs or military spending, or tax increases, or privatizing or eliminating some aspect of government). There may be some factual science to discussions of the debt, but it is not really behind most political positions. Some people believe in smaller government, some people believe in a larger military (often the same people), some people believe more in a social safety net, many people believe in lower taxes. Since the national debt is likened to household debt, and most people know they’d go broke if they continued to spend more than they earned, it sounds inevitable that there will be a crisis, and making it sound like a crisis is a good way to get voters engaged. Then, when you need their support for something different, the crisis suddenly isn’t so much of a crisis.
Is the burgeoning national debt going to be a crisis? In terms of economics, we don’t know, but probably not. There is no strong evidence that it’s a real problem, and economists differ in their opinions. See Do Deficits Matter? The belief used to be fairly widely held that deficits could be good for the economy, particularly in times of need such as recessions. The government can borrow at relatively low rates, spend a lot more money than it brings in, and this allows businesses and consumers to continue to lend, borrow, and spend, preventing an economic death spiral. In fact, this was pretty much the plan that both George W Bush and Barack Obama stuck with to prevent the last recession from being much worse, and it certainly seems to have worked better for the U.S. than austerity worked for other countries that were not so lucky.
Does the growing deficit matter at all, then? Yes, it matters a lot, but not because of the imagined debt crisis. It matters because of politics. The legend of the crisis could lead to painful new taxes, or painful new spending cuts, or both, or a default on U.S. debt, which really would be a crisis. None of these rash measures is required, but the whole point of this site is that politicians are required by their positions to do things that promote their political stock while potentially harming the nation as a whole. Or, in some cases, they are merely misinformed because they don’t take a lot of time to study economics. They are much better at studying what gets them elected. And some officials have proven that they are willing to use the deficit or the debt as an excuse to shut down the government or default.
The real issue is not the debt or the deficit, but government spending. The government has to decide on how much to spend, and on what. It’s not that we can’t afford to spend what we do, but rather than taxpayers tend to agree that a lot of money isn’t well spent and that they’d rather keep more of it than have the government run wild with it. Also, many of us have been conditioned, starting from Ronald Reagan’s “government isn’t the solution to our problems, government is the problem” to believe that government spending is bad because government is bad, and more government is worse. I don’t believe this is a particularly true or helpful belief, for many reasons, mostly the general lack of ability of Congress to solve the problems, regardless of who’s in charge, along with my actual first-hand knowledge of the legitimate functions of many government agencies. If you let Congress have a knife, they will just as soon cut out a vital organ as cut out fat. If you give an agency bureaucrat a proposal that includes a budget cut, they’ll send a budget back to you with the programs cut that you most want to keep, the ones that will hurt the most, just so you won’t cut their budget. Interior will say they’ll have to shut down the national parks and stop fighting fires. The military will say they can’t provide body armor for troops in the field. It’s very hard to manage.
I was a special government employee for three years, the only time I was actually employed by the U.S. government. I was appointed by the Secretary of Commerce to a committee that advised the U.S. Patent and Trademark Office. I happened to be on this committee during a period known as “sequestration”, when automatic spending cuts went into effect due to a prior Congressional budget deal that had specified that if Congress couldn’t agree on specific cuts in time, there would be across-the-board cuts, including the military. On the one hand, many of the automatic cuts were ridiculous. In the Patent Office, for example, the automatic cuts were pretty much guaranteed to cost taxpayers money because the Office was sustained by fees paid by users (mostly patent filers) and the less work they were able to do, the less they brought in in fees. Plus, as in all government agencies, it is very hard to fire people. So contracts are terminated and put on hold, and other temporary costs are reduced. Then, when sequestration finally ended, those projects that were terminated or suspended had to be restarted, but since the resources that had originally been lined up weren’t available any more a whole series of procurement processes had to be repeated, leading to gross delays and inefficiencies. Meanwhile, the congressional oversight committee was complaining that the Office wasn’t processing enough applications fast enough.
The budget under sequestration, however grossly inefficient and inept, is the most effective set of spending cuts that Congress has done, in my experience. In other words, if Congress uses the knife based on politics, rather than based on automatic percentage-based cuts that no one ever expects to happen, it can be even worse. Benjamin Franklin famously commented that democracy is like two wolves and a lamb sitting down to lunch. He wasn’t even aware of what it would be like in today’s polarized two-party system when one party controls the budget. They will attack the programs that distance them from the other party the most, regardless of the effect on taxpayers. Progressives go after the military, and conservatives go after Medicare. Progressives go after NASCAR, and conservatives go after NPR and Planned Parenthood.
What should the government do, and what should we do as informed citizens? First, Congress has already, albeit perhaps reluctantly, separated tax cuts from spending cuts. This is probably a good thing. Had they been coupled, we probably would have achieved neither, and while some may like a do-nothing Congress because it may be better than what the wolves do to the lambs, it’s not ideal. Under no circumstances should we support, or allow our elected representatives to support, draconian measures such as dramatic cuts to discretionary spending or large tax increases in the name of fiscal prudence.
Note what happens when politicians wield the knife. Rick Perry, when a presidential candidate, famously said he’d eliminate several entire government departments, then stumbled when asked to name them all. He ended up, ironically, as cabinet secretary for the one he’d forgotten, the Department of Energy, upon which he suddenly realized how important the Department is (I think he had thought before that it was a needless regulatory agency, but it includes our national laboratories and nuclear weapons research).
Should we allow the debt to continue to grow? Probably not. We should aim for an elected leadership that eliminates waste from the government (including the military) without a visceral political budget war. In the movie, Dave, Kevin Cline’s character, the president, is an ordinary guy. To balance the budget, he brings in his ordinary accountant, who quickly observes that we’re subsidizing one company to do the opposite of what we’re paying another company to do, buying things we don’t need, and so forth, and presto, it’s fixed. It’s not real, but the real part is that much of that waste is in there because someone in Congress put in there because of a lobby, special interest, or constituency. That’s why it’s hard to eliminate.
So it’s hard to do, but we need to de-politicize the budget process as much as possible. We need to reform the budget system in Congress so that there actually is a budget, rather than a series of resolutions, appropriations, and spending balls passed under pressure. We need to aim for a non-partisan or bi-partisan budget committee whose recommendations are adopted or at least considered, so that genuine tradeoffs are considered and last-minute amendments (aka pork and earmarks) are reduced. Hardly anyone in Congress, particularly in the minority party (which, ironically, has been persistently the one blamed for overspending) even knows where the money is going, or could even be expected to know. The minority party doesn’t even see the spending bills in time to debate them, which can hardly be seen as helping to contain wasteful spending — there isn’t even any real discussion until it’s too late.
Since we as ordinary citizens don’t get to wield the knife, all we can do is ask our elected representatives to help reform the process and make it as effective and bi-partisan as possible, not simply elect them based on their pledge to support or cut a particular program. When we do, it means that all or most of the favorite programs continue, even those that no one cares about except a few companies, wealthy individuals, and lobbyists. There will be no limit.