The federal debt is mounting. It has exploded since 2000, rising over 250 percent. At face value, it’s difficult to see the immediate effects of irresponsible government spending. What are a few extra dollars here or there, and what difference does it make in the grand scheme of things?
The most likely scenario is that the government will not do anything until it is too late. The government’s inaction stems from the fact that this is fundamentally a long-term problem and our democracy is a very short-sighted one. Most macroeconomists believe the ratio of debt to economic output for a stable country should be around 60 percent. As the debt soars farther above the 60 percent mark, it will become increasingly difficult to take loans out from investors to bridge the gap between spending and tax revenue. Currently, our debt is equal to about 70 percent of our GDP. Most figures estimate that it could climb to 100 percent or higher by 2024 unless something is done to reign in spending.
The U.S. government is the biggest borrower of money in the world and the interest rate it pays on its loans determines the minimum interest rate for everyone else. As the government’s loans become more expensive, it will be harder for our generation to take out the loans necessary to invest in our children’s college education or buy a house.
As the interest rate rises, it will become even harder than it currently is for the middle class to climb up the socioeconomic ladder. How can a poor family move into a better neighborhood with better schools if they can’t afford to take out such expensive loans? Niall Ferguson showed us in The Ascent of Money that access to inexpensive loans has been one of the greatest alleviators of poverty in human history. If we don’t act to reign in the debt, we as a society will regress in our fight against poverty.
The rising interest rate will have even more worrying consequences for our federal programs. Thanks to the miracle of compounding interest, the government currently spends six cents of every dollar trying to pay off interest on its debt. Admittedly this isn’t a historical high: interest payments accounted for more than 10 percent of the federal budget in the mid ‘90s. But as we continue to spend more than we take in, our interest payments will grow exponentially.
A nonpartisan 2013 CBO report projects that, at the current rate of spending, interest payments will exceed the entirety of the defense budget by 2020. Before most of us turn 30, interest on the federal debt may account for more than 20 percent of our budget. That’s hundreds of trillions of dollars that could have been spent on food stamps, federal scholarships, Head Start, immigrant assistance, Section 8 housing vouchers, and the panoply of other safety net programs that protect America’s most disadvantaged and give them a chance to succeed. Without action taken to fill the gap between spending and revenue, the above scenario becomes inevitable. Interest payments will eclipse other government priorities, with the social justice programs most likely to lose out.
Without question, many programs are larger than they need to be. Two prolonged wars cost the American public nearly $2 trillion and have left us with a swollen military budget. As the U.S. enters an era of warfare where firepower and manpower aren’t the only determinants of victory, it will be important for our military’s spending to reflect this new environment.
Our entitlement programs need to be restructured to make them sustainable. Between adjustments to who gets benefits (cutting benefits to those who can support themselves, raising the retirement age), caps on benefits, and so on, changes need to be made. Social Security has spent its third year in a row in a deficit and will have to take money from other programs to finance its obligations if nothing is done.
At the same time, tax revenue needs to be increased significantly, whether by raising rates or expanding the base. As The Economist put it in their article endorsing Barack Obama “America cannot continue to tax like a small government but spend like a big one.”
This is why I have taken to organizing the Up to Us campaign on campus. We want to start a smart dialogue about the debt among students because there is no demographic that stands to lose more from this than our generation. Regardless of your opinion on the issue, we welcome you to come to our events and join the conversation we are trying to start. We don’t claim to have the answers to the problem—we just believe it matters.
