I got angry with a good friend last fall when he said that
our national debt was a burden on our grandchildren. I rashly said (to this PhD) that he must have flunked Econ 101.
Then I heard Mark Shields on NPR News Hour say the same absurd thing. The Shields/ Brooks part of the program is perfect synecdoche. Brooks is handsome, brilliant and neo-conservative, Shields is an alcohol besotted Democratic political hack.
Please don’t embarrass yourself. Saying the national debt will.......
Please don’t embarrass yourself. Saying the national debt will be passed on to future generations is as wrong as saying that water gets heavier when it becomes ice, that sound travels as fast as light or that a heavy rock falls faster than a teaspoon.
Think for a moment. Are we still paying the debts of the American War of Independence from
England, from the Civil War or World War II? By what logic will we ever stop paying it?
Actually, in some peculiar sense we are paying these earlier debts because the national debt never gets paid off. A few $ million from the American War of Independence is still part of the current $8 trillion national debt. In any case, I am happy to pay for those earlier debts, if I actually were paying for them -- which we are not. One month's interest payment on the national debt exceeds the total national debt of all wars up to and including WWII. The principal never gets paid down significantly; our income keeps going up.
I know most people can’t comprehend what Econ. 101 teaches about national debt or social security, for that matter, so I have come up with an easier way to think about it.
Nearly all of us go into debt in the early working years of
our life. It is not uncommon for a
mortgage to be three or four times our annual income. The U.S. debt is not three or four times our national income it
is a little over half our national income. So, for godsake, how can people get worried? The U.S. debt burden is one eighth of what we would consider
acceptable for a young couple with children who are buying a house.
We are not increasing our debt either. It remains the same proportion of our income as it has been for over a decade.
The Bush tax cuts, in his first year in office and subsequently, have generated more than enough increased tax revenue to pay for the all the increased debt he and the Congress have created.
The first way we look at debt, from a personal point of
view, is to compare the total debt to our income. The U.S. does extremely well by that standard, compared to me in
my family formation years and to most of us. The second concern is whether the U.S. or we ourselves can afford the
interest on our debt.
The measure for the level of tolerable interest payments has been two fold, on a personal basis. Is the interest rate higher than the prevailing rate? Do we suffer inordinately because we lack disposable spending?
When we are paying credit card interest at 18-27% we consider that bad debt because mortgage interest is 6% and auto loan interest is 12%. So we minimize the high credit card interest payments when too much of it is above the other prevailing rates available. When we talk about our interest burden causing personal suffering we each have our own standard. If it means packing a lunch everyday, rarely going out for dinner and riding public transit to work --- we consider it tolerable. When we have to take in roommates or boarders, ride a bicycle in the winter, turn off the cell phone, the cable service and our broadband connection…our interest payments are too high.
Let’s settle the first question. The U.S. government always pays the lowest interest rate. Always, that is the definition of the lowest interest rate … what the U.S. Government “bill rate” is the lowest interest.
Interest burden is a different story. The interest on the U.S. national debt is now $350 billion. The same as when George W. Bush became president. In fact it is roughly the same amount as during most of Bill Clinton’s presidency. Tax revenue, is much higher than a decade ago and continues to grow rapidly.
For Bush, this interest burden has been small because
interest rates fell shortly after he took office and his first Congress reduced
some mandatory spending. Bill Clinton
had the worst case of interest payments and mandatory spending (ranging between
45 and 50% of total government revenue) squeezing discretionary spending.
Clinton’s interest burden reached 15% of total tax revenue at one point in his
administration. Interest burden as a
percentage of federal tax revenue had ranged between 5-15% for a long time. It
is currently 12% of total Federal tax revenue.
Summary: the interest squeeze on discretionary spending has at times been serious (under Clinton) but it is not now a problem and won't be for awhile. Bush has more discretionary spending than any president in my life time, real and percentage wise.
Which brings us to the real issue in Washington. How do we stop the mandatory spending that is created by rapidly growing Medicare obligations from eliminating the discretionary spending that remains? Interest rates may and will go up, the national debt may go up, but nothing is going to have the impact on reducing discretionary spending of uncontrollable rising Medicare expenses.