The Great Recession of 2007 was a disastrous time for the United States. Millions of homeowners either lost their homes or became upside down in their mortgages. Millions more lost their jobs or were unable to find work. And trillions of dollars was wealth was lost following the collapse of the financial sector.
In many ways we are still living through the economic scars of the Great Recession and many are left to wonder whether this is our “new normal.” But if there was a silver lining in any of it, it was that a light was finally shone on the untenable nature of the government’s debt and deficit. The U.S. government had grown fat and happy on a taxpayer-funded credit card that was long ago maxed out.
Lessons from nations like Greece, which suffered a sovereign debt crisis, seemed to finally hit home: It was time to get serious about balancing our budget.
But wounds heal, scars fade, and the passage of time dulls the immediacy of crisis. Most Americans no longer look at the National Debt Clock with a sense of urgency and Congress has been asked to deal with myriad other policy priorities.
And yet, a new milestone in the size and scope of our national debt reminds us that we must be vigilant against complacency. For the first time in its history, the federal government has more than $20 trillion in outstanding debt. That’s especially troubling given that the annual GDP of the nation is about $19.2 trillion, meaning that if every American worked every day to sell their goods and services to pay off the debt, it still couldn’t be done in one year.
Unfortunately, that eye-popping number underestimates the size of our fiscal problem.
Projection released earlier this year from the Congressional Budget Office warns that the federal debt will reach 150 percent of GDP in fifty years. As a way of comparison, the debt held by the public stood at 35 percent of GDP as recently as 2007 and has averaged around 40 percent over the last 50 years. In addition the budget deficit is projected to more than triple, going from around 2.9 percent of GDP in 2017 to 9.8 in 2047.
As the CBO writes in its annual Long-Term Budget Outlook, this level of fiscal strain threatens a death spiral of lower economic growth and reduced ability to pay off the debt:
“Large federal budget deficits over the long term would reduce investment, resulting in lower national income and higher interest rates than would be the case otherwise. If the government borrowed more, more of people’s savings would be used to buy Treasury securities, and thus private investment would be crowded out. Although both the government and private borrowers would face higher interest rates to compete for savings, and those rates would strengthen people’s incentive to save, the increased borrowing would exceed the rise in saving by households and businesses. Therefore, national saving—total saving by all sectors of the economy—would be lower, as would private investment and economic output. With less investment in capital goods—factories and computers, for example—workers would be less productive. Because productivity growth is the main driver of growth in people’s compensation, decreased investment also would reduce average compensation per hour, offering people less incentive to work.”
In simpler terms: Federal debt leads to less private investment which leads to lowered productivity which leads to lower wages which reduces our ability to pay off the debt.
Those sizable interest rates do more than just crowd out private investment, they also act to crowd out investment in our nation’s future. According to research from the Peter G. Peterson Foundation, the debt burden will lead the government to spend $6 trillion on interest over the next decade.
“That’s more than we will invest in our kids. So, in effect, we have decided to spend more on our past than in our future,” Michael A. Peterson told The Hill.
That’s the real crisis. That we’re mortgaging the nation’s future to pay for decisions made in the past. And, as Rep. Jeb Hensarling said upon the debt surpassing $20 trillion, we keep promising to deal with it tomorrow.
“[W]hen it comes to our national debt the familiar refrain from too many in Washington continues to be, ‘we will deal with that tomorrow.’ Hensarling said in a statement. “I’ve been hearing that for years and now the American people are waking up to find out we now have $20 trillion worth of debt today, and tomorrow never seems to come.”
“There is a true spending-driven debt crisis in America. It is the greatest existential threat to our country that receives almost no attention in Washington.”
If the Great Recession taught us nothing else, it should teach us to pay attention to our fiscal future.