Politicians are continuing to promise trillions of dollars in free education, housing subsidies, universal health care and other programs. Recently, BET founder Robert Johnson called for $14 trillion in reparations alone. Kamala Harris has a $10 trillion climate plan. On the Republican side, President Trump has shown little restraint in spending throughout his term while cutting revenue (and borrowing at a record rate). It is not surprising therefore that, last month, the United States passed the long-discussed red line for economists. Our debt is now greater than than our gross domestic product. In June, we passed $25.5 trillion in debt and this figure may be overly conservative. It is now roughly $27 trillion. Yet, neither party seems a bit concerned as this political ship of fools floats toward a collision with economic reality.
The federal debt has ballooned with pandemic spending but Congress and the White House was already spending with abandon before anyone even heard of Covit-19 or the Wuhan wet market.
Just consider this simple fact. In December 2019, we were $17 trillion in debt (an alarming figure discussed on this blog as 80 percent of the gross domestic product. The fear of government analysts was that debt would approach 100 percent of GDP by around 2030. We reached that point at the end of June with $25.53 trillion, or 106 percent of GDP.
Yet, politicians are still throwing around trillions of dollars like they are bargaining chips like Speaker Nancy Pelosi recently expressing frustration that the White House does not simply reach an agreement with it going up a trillion and the House going down a trillion on the next stimulus package.
We have a new mindset that makes Sen. Everett Dirksen look positively frugal when he famously said “A billion here, a billion there, pretty soon it begins to add up to real money.” Now it is a trillion here, a trillion there and it still does not seem like real money.
It is certainly true that large economies like the United States can hold huge debt without spooking investors and triggering a rise in interest rates on debt. We have passed the 90 percent mark a few times in history as with World War II. However, there is every reason to be concerned. World War II also was followed by an expanded industrial base and booming economy. That does not seem in the works to the same extent. In addition, we will be looking at increased annual deficit funding to meet these commitments without substantial increases in taxes, which do have an impact on investment and employment rates. Debt and deficits are often confused but the ledger is not good in either category.
No one is suggesting clarity on how such trends play out but it would be comforting if there was some indication that either party was taking this ballooning debt seriously.