Some have been sounding the alarm about our government’s mounting debt for decades. In the past, they were generally dismissed as alarmists crying wolf. Today, however, most Americans clearly hear the lupine claws of national debt scraping at the door.
More and more Americans now share the unpleasant feeling that our nation (indeed, the entire Western world) has edged up to some sort of fiscal precipice. Moreover, the concern is not sparked by a specific policy or confined to a particular demographic or interest group.
A clear majority of Americans now expect our military might to fade over the next two decades, polls show. By a three-to-one margin, they believe their children will inherit a country on a downward trajectory. Nearly half say it is no longer possible for a person to work hard and become rich. As President Obama said at Carnegie Mellon University this week, there is a growing “sense that the American dream might slowly be slipping away.”
Unsurprisingly, trust in government has cratered. “Just 22% say they can trust the government in Washington almost always or most of the time,” the Pew Research Center recently found. It’s among the lowest ratings in half a century. Congress now suffers the lowest favorable rating (25 percent) in a quarter century of Pew surveys. Call it the New American Malaise.
Is malaise justified? Certainly, we seem to be reaching numerous “tipping points” on the road to fiscal Armageddon.
For starters, soon foreigners will own a majority of our debt — and we are getting deeper into hock to them every day. Last year marked the single largest expansion in government debt ever. Federal debt alone accelerated past the $13 trillion mark last week.
President Obama’s budget forecast reflects a cock-eyed optimism about our fiscal future, yet even it projects total U.S. debt will rise from 2009’s 53 percent of GDP to 90 percent by 2019. “Most economists,” Sen. Judd Gregg (R., N.H.) notes, “will tell you that an economy can handle between 30 and 40 percent debt as a percentage of GDP. But a nation’s economy starts to get into trouble when that ratio gets up around 60 percent of GDP. When it gets up to 80 percent of GDP, basically an economy can’t handle that for very long.”
The day of reckoning may already be here, according to a new study by the International Monetary Fund. It pegs our “general government gross debt” for 2010 at 92.6 percent of GDP. By 2014, the IMF estimates, government debt will pass the 100 percent–of–GDP tipping point (hitting 106.4 percent to be exact) and keep on going. To forestall a Greece-like fiscal catastrophe, the IMF says, lawmakers must act now to reduce government debt by more than $1.6 trillion. Instead, Congress is looking to pass an “extenders” bill that will run up hundreds of billions more in debt.
And the economic consequences are severe. Each 10 percent–of–GDP increase in debt, the IMF has found, slows economic growth by 0.25 percentage points per year.
Another just-reached tipping point makes it harder for Congress to paper over its excess spending. Social Security is now operating in the red, six years earlier than expected. Until recently, Social Security payroll taxes were Uncle Sam’s cash cow, subsidizing other federal programs to the tune of $100 billion–plus annually. Now, all those revenues — and then some — are needed just to cover each month’s Social Security payments.