Everett Dirksen was the Republican Senate Majority Leader for virtually the entire 1960s. Relative to the federal budget, he allegedly said: A billion here, a billion there and pretty soon, you’re talking about real money. The only thing that has changed is that a trillion is the new billion.
A significant chunk of what the federal government spends is borrowed money. Spending in excess of revenue is the annual deficit. Each year, the deficit adds to the national debt. The United States has not been free of debt since Andrew Jackson was president. In a very real sense, we are still paying off the Civil War.
Candidate Barack Obama appeared to understand this as a problem in 2008. Four months before the election, he said:
The problem is that the way [President] Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion dollars for the first 42 presidents — number 43 added $4 trillion dollars by his lonesome — so that we now have over $9 trillion dollars of debt that we are going to have to pay back. [That’s] $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic.
So, what happened when candidate Obama became President Obama? In his first term, the debt increased by $7 trillion, from the $9 trillion cited above to $16 trillion. Much of this was due to the 2008 financial crisis which he inherited. Surely the debt was more modest thereafter.
It was. Huge deficits continued but the debt did not grow as it had in response to the Great Recession. By the end of Obama’s second term, the debt only grew to $19 trillion. By early 2020, it surpassed $23 trillion. The annual interest payment on the debt exceeds a half trillion dollars, about $4,000 per taxpayer.
If the Universal Bank of the Cosmos gave the United States a thirty-year loan to pay off its debt at two percent interest, the monthly payment for every tax-paying household would be about $600/month. But that is just the start. In addition to this surcharge, tax rates would have to be almost doubled to preclude new deficits from further adding to the debt.
A few years ago, John Stossel wrote:
What would you think of a person who earned $24,000 a year but spent $35,000? Suppose on top of that, he was already $170,000 in debt. You’d tell him to get his act together – stop spending so much or he’d destroy his family, impoverish his kids and wreck their future. Of course, no individual could live so irresponsibly for long. But tack on eight more zeroes to that budget and you have the checkbook for our out-of-control, big-spending federal government.
The difference between the guy in the Stossel quote and the federal government is not only those eight zeroes. The government has the capacity to create money. This is not just its literal capacity to produce physical coins and paper notes. It is within the power of the Federal Reserve to borrow money at will. However, when it does, it adds to the deficit and hence the debt.
The dollar has value because people believe it has value. That is what is meant by the full faith and credit of the federal government. The money in your pocket is paper and the money in your bank account is just digital entries on a computer server somewhere. It has value only because people believe that the US government will honor is debts and other financial obligations. This faith is intrinsically tied to the strength of the US economy. While the dollar has acknowledged value, the Haitian gourde does not. Haiti too could issue government bonds, but if they were to be paid off in gourdes, but no serious investor would buy them.
Politicians of every stripe bemoan the national debt. Most would acknowledge that this ever-growing debt will, sooner or later, sink the US economy, and likely collapse markets worldwide. The problem is that no one can precisely predict the critical level at which the debt becomes fatally toxic, and no one knows when this will happen.
A safe judgment for a US legislator, however, is that the proverbial fecal matter will not hit the spinning blade before the next election. Another term ignoring the deficit poses little danger of economic collapse but a real benefit to his/her reelection. This is like saying, I must quit smoking but one more cigarette will not kill me. One side of the political spectrum is willing to increase the debt to expand entitlements for its constituents. The other side will lower taxes and/or increase military spending to please its constituents. Because placating your supporters is more important than preventing your opposition from doing the same, both sides willingly capitulate to the other to get what they want. In the worst years, taxes go down and spending, for both guns and butter, goes up.
For nine of the twelve years ending in 2019, the deficit was over a trillion dollars. It averaged almost $1.1 trillion; the high in 2009 was $1.9 trillion. Apparently, Congress and the White House will abide routine deficits over a trillion dollars. In a national emergency, however, the sky is the limit. Cash infusions to counter the economic effects of the coronavirus will likely add three to five trillion to the debt in 2020.
The effects of a major hurricane are visible; the impact is viseral. Given recent observable changes in weather patterns, most people believe that climate change is real and that major consequences are inevitable. However, no one knows for sure the magnitude of these consequences and the timing is even more unknowable. The evidence of global warming dramatic but impact is amorphous.
By comparison, when the annual deficit gets a tenth digit, the impact is far less dramatic. Yet compared to climate change, the threat is just as real, more certain and potentially catastrophic. Obama said the Bush’s $9 trillion debt was irresponsible and unpatriotic. By the end of 2020, it could be $28 trillion.