Thursday, April 4, 2019

The Two Most Scary Charts You Can Imagine Concerning US Government Debt

Forget President Trump's rosy budget forecasts, here is the real story.

William G. Gale, author of the just-published book, Fiscal Therapy: Curing America's Debt Addiction and Investing in the Future, writes:
We’ve had episodes of high debt before, but until now, they have always been due to wars or economic downturns, and the debt buildups decreased rapidly relative to the size of the economy after the war or downturn ended. After World War II, for example, debt peaked at 106 percent of GDP in 1946, but fell to half that figure by 1956 as strong economic growth prevailed.

Now, however, we have debt that is equal to about 78 percent of GDP, and it is projected to rise, slowly and steadily, to 180 percent by 2050 and higher levels beyond that. These levels are not only higher than ever before, they are due to different factors.

Notably, the source of our rising debt isn’t a war or recession. Unlike in previous episodes, we can’t solve this problem by cutting defense, which is already a much smaller share of the economy than in the past. Nor can we “grow our way” out of the problem, as we did after World War II. This would require far higher rates of economic growth than we can reasonably expect to generate. We are already generating large deficits in a very strong economy, and deficits are expected to rise even if the economy continues to do well.

The source of our rising debt is a built-in and growing imbalance between taxes and spending.

Gale continues:
In order to think clearly about fiscal issues, it’s crucial to get a sense of where the money goes. Americans routinely mistake the relative size of controversial budget items—from foreign aid, to the salaries we pay members of Congress, to the subsidies we allot for public television. Many want to believe that if we can just eliminate the least popular items, we can rein in red ink without breaking a sweat. But the numbers show how wrong that is.

While the government runs thousands of programs, just four areas—Social Security, health care, defense, and interest payments on the debt—account for more than two-thirds of all spending currently and will cover an even larger share in the future.




-RW





3 comments:

  1. This chart doesn't look right. Current debt is 22T and GDP is under 20T. ??????

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    Replies
    1. There are two different ways that debt is calculated. Gale is providing Trump the benefit of the doubt using the lower number.

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  2. I share this video with my AP economics students here in Canada each year for some perspective on the US economy. "Obama Budget Cuts Visualaiztion": https://www.youtube.com/watch?v=cWt8hTayupE

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