America’s $30 Trillion Problem

‘C ontrary to the prevailing wisdom in Washington these past few years, we cannot simply spend as we please and defer the consequences to the next budget, the next administration, or the next generation,” then-President Obama declared during a “Fiscal Responsibility Summit” convened at the White House on February 23, 2009, days after signing a massive economic-stimulus bill into law. At the time Obama made the statement, the total debt of the United States government stood at $10.8 trillion, or nearly double where it was when his predecessor George W. Bush took office in 2001.

In the years since, two fiscal developments are especially noteworthy. One is that total debt has nearly tripled, eclipsing $30 trillion this week. The other is that nobody cares.

Indeed, back in 2009, even as he was advancing expansive fiscal policies, the big-government liberal Obama felt it necessary to claim to be fiscally responsible. These days, even in the face of a much deeper problem, both parties are further than ever from even pretending to care about the mounting debt and its looming consequences.

Liberals, who have gained more influence within the Democratic Party, recognize that any concerns about the debt and deficits are a barrier to advancing their sweeping domestic agenda. Whether or not they have explicitly done so by name, in effect, they have absorbed the lessons of Modern Monetary Theory and determined that debt doesn’t matter, nor should it get in the way of pursuing policies that they would otherwise support on the merits.

Even Senator Joe Manchin, who has pulled the plug on Biden’s Build Back Better plan, is no miser. Before yelling stop, the West Virginia senator voted for $2.5 trillion in mostly deficit-financed new spending in 2021, on top of $4.1 trillion in spending during the 2020 stretch of the Covid-19 pandemic.

Republicans are not much different. The old complaint is that Republicans talk a big game about cutting spending during Democratic administrations only to abandon fiscal restraint once they actually have power. While largely true, it’s significant that they have not reacted to President Biden’s binge in the way they did to the government expansions pursued by Obama and previous Democratic presidents. They ran on limited government and anti-spending platforms in their landslide wins in 1980, 1994, and 2010. There is no evidence that budget matters will be a central part of their message in this year’s midterms.

While the incentive for big-government Democrats to disregard fiscal responsibility is obvious, for Republicans it speaks to broader changes within the party that have sidelined government spending as an issue. Some Republicans are simply more energized by other fights, such as those over Big Tech censorship, immigration, Covid restrictions, and school curriculums. Others have become resigned to the idea that battles over spending are political losers. Still others actively oppose overhauling the old-age entitlements of Social Security and Medicare and embrace a more active government role in responding to economic anxieties.

Those of us who believe in addressing the long-term debt problem also have to acknowledge another obstacle. For decades, we have warned of the risks of accumulating so much debt, yet despite massive annual deficits, the nation has not faced the sort of fiscal crisis that many of us have been warning about. Of course, deficit hawks have long qualified their warnings by noting that there is no magic point at which the debt becomes unsustainable. Rather, the larger the debt grows, and the longer the federal government signals to investors that it has no plans of addressing the problem, the greater the risk there is of a fiscal crisis at some point. The fact that the problem has not yet materialized, however, has led to more skepticism about taking action. And if that’s the case, why take the political risk?

That said, one point worth emphasizing is that the experiment we are currently undertaking is unprecedented in U.S. history. Even ignoring the portion of the debt that represents money the federal government owes to itself through holdings such as the Social Security trust fund, publicly held debt has reached $23.5 trillion, and in proportionate terms has reached the size of the annual output of the U.S. economy. Debt as a share of gross domestic product has been the highest since World War II for two consecutive years. While this was obviously exacerbated by the pandemic, the period we are entering is unlike after World War II. Back then, when the crisis ended, debt receded. But debt will continue to grow in the coming decades as a result of the expanding pool of retirees and rising health-care costs.

Just don’t expect anybody in Washington to do anything about it.