For about a decade now, budget hawks have been warning that the federal budget is fundamentally out of balance. Spending on entitlements and interest payments on the federal debt will grow more rapidly than revenues, eventually producing a debt spiral that will precipitate another financial crisis. Equally ominous, growth of spending on Medicare, Social Security, and interest on the debt, which enjoy priority under federal budget rules, will squeeze spending on everything else. In 2005 and 2007, scholars at the Brookings Institution published books making this case and outlining ways to reduce annual deficits and accumulated debt. In 2010, the normally staid National Research Council joined forces with the National Academy of Public Administration to sponsor an elaborate report on the “long-term budget challenge facing the federal government,” recommending that Congress and the president enact policies to reduce the federal debt as a percentage of GDP. Meanwhile, national polls showed that the public was becoming concerned, even alarmed by the prospects of a mounting debt crisis. Between 2002 and 2010, polls by the Pew Research Center for People and the Press found that the percentage of Americans who said the deficit was a “top priority” steadily increased from 35 percent to 60 percent.
Given the rising concern, in 2010 President Obama appointed a politically balanced National Commission on Fiscal Responsibility and Reform, popularly known as the Bowles-Simpson Commission after its co-chairmen Erskine Bowles, a prominent Democrat, and Alan Simpson, a prominent Republican. The Commission’s final plan was released near the end of 2010 and called for both spending cuts and tax increases that would stabilize the growth of debt held by the public by 2014. The plan was not aggressively supported by the President and was never voted on by Congress. Like so many things in the nation’s capital, it was much discussed, widely admired and criticized, but never enacted by Congress.
Even so, the report, along with many other reports, media articles, and the increasing concern by the public, created great pressure on Congress to do something about the debt. As a result, Congress conducted a three-year circus to reduce the deficit and stabilize the nation’s debt. Congress tied itself in knots with various committees, government shutdowns, and amazing levels of partisan bickering, and by 2013 managed to reduce the 10-year deficit by nearly $4 trillion by cutting projected spending, primarily on discretionary programs, and modestly increasing revenues.
But now the level of commitment in the White House and Congress to do something about the debt seems to have vanished. The last serious action was the American Taxpayer Relief Act passed in January 2013, now nearly 15 months ago. The nation’s front pages, editorial pages, blogs, and other forms of political commentary have virtually stopped covering stories about the debt. The president and senior members of Congress rarely mention it. The prospects for additional action now seem remote.
So the problem must be solved, right? No. Consider the most recent numbers from the Congressional Budget Office. Although the debt as a percentage of GDP will hover around 72-74 percent until 2019, it is projected to begin rising again and reach 110 percent by 2038. Compared with the average of the last four decades, again according to CBO, by 2038 spending on health and Social Security as a percentage of GDP will increase 100 percent, spending on net interest will increase 150 percent, and spending on everything else will decline by 40 percent.
So we solved the debt problem if you think it’s fine to cut early education, investment in research, military preparedness, infrastructure, and a thousand other categories of discretionary spending while we protect Social Security, Medicare, and other health entitlement programs and while dramatically increasing spending to pay the interest on goods and services we already purchased and have now mostly consumed. On the other hand, I have the old-fashioned idea that investments in human capital, physical capital, and research should, if anything, take precedence over spending on the elderly. Congress and the president have set us on a course that does the opposite. Not only that, but there are a number of things that can, and one or more of which almost certainly will, go wrong. Perhaps we think that recessions, wars, poverty and lack of opportunity, and decaying infrastructure no longer pose any threat to the nation. Perhaps we think that the current historically low interest rate will stay low forever, thereby ensuring that the federal government will not face a dramatic increase in the already huge interest payments on the debt.
The silence from the White House and Congress on the long-term debt is a sign that politicians are tired of dealing with a tough problem. They know that solving the debt will require Republicans to accept increased taxes and Democrats to accept reductions in the projected spending on entitlements for the elderly. Neither party is willing to compromise on these basic elements of their political agenda. It’s enough to make a person think that we have an even more fundamental problem than growing debt. Maybe the real underlying problem is inept governance.
Will the American business community sit idly by and watch Trump undertake a trade war with China? They have a lot at stake in this. [Trump's stream of anti-Chinese Tweets poses risks of being misunderstood.] China would regard a potential challenge as more dangerous than it actually might be.