One of the key aspects of human efficiency is making decisions based on facts, data, and nonideological logic. There are two metrics that are used to measure how much the government is overspending. These metrics are the deficit and the debt. The deficit is the annual amount spent minus the amount of income received. It was huge in 2009 after the last recession, about $1.4 Trillion or about 10% of GDP but has been decreasing every year as the economy recovers and money collected through taxes increases. It was down to about $435 Billion in 2015, or about 2.6% of GDP. This is certainly heading in the right direction but is still a horribly big number.
Then we have the debt which is the actual amount of money that the government owes and which has been building up over decades of fiscal irresponsibility. Right now, the debt is about $19 Trillion which is about 100% of GDP. But some of this is money that the treasury owes to other parts of the government. Subtracting this amount supposedly results in a better measure of debt, closer to $13.9 trillion, or as Time Magazine pointed out last year, $42,998 per man, woman, and child.
Although this is still a bearable now, we are getting closer to a point or a cliff where it could reportedly impact growth and make paying it off more difficult. As noted last time, about half of the money borrowed goes towards paying interest on the debt.
The trouble is, the debt is only going to get worse. One of the upcoming problems is rising interest rates. As interest rates go up it will cost more to pay the interest on the debt. We have had it easy for the last seven years due to low interest rates but that is coming to an end.
The other thing that concerns me is that it has now been over 90 months since the beginning of the last recession began, the big one. That means we are due or overdue for another recession and many of the warning signs are there – low unemployment, overpriced stocks, and rising interest rates. When a recession occurs, the deficit will again skyrocket and the already high debt will get worse.
Economist John Maynard Keynes got it right when he said that governments should increase spending and cut taxes during recessions when consumers and companies cut spending. But he also said that in good times governments should run surpluses to pay off the debt.
According to Pew Research, people in the U.S. are concerned about the deficit with the biggest concern coming from voters backing the party not in the White House. Overall, concern has been increasing over the past decade as the debt level has increased. In 2015 about 68% of independents indicated that reducing the deficit is a top priority. This number is close to the average for all voters. So once again, the people know what is going on and Congress is not implementing the will of the people.
There are reasons to believe that the debt is not all that bad, but there is a limit to how big it can get, especially with another recession around the corner. It is irresponsible and inefficient to saddle not just future generations but our own generation with debt because of irresponsible actions on the part of many in Congress, the people that are supposed to represent us.
We need to practice Keynesian economics to lower the debt during good times. This will be discussed further in the next blog in which I will begin to develop the platform for the moderate, centrist party.
Next: 1. Reducing the Debt