America Faces a Debt Nightmare
economist.com
economist.com
Interesting to hear an expert take from someone with decades of experience show some empathy to what likely will be GenZ or Gen Alpha. I've been saying for a long time now that govt debt is a very problematic tool because it allows today's leaders to create obligations for folks who didn't vote for them (likely couldnt vote at all). Even in perfect intentions it's not consensual to burden future generations with debts they had no voice in choosing.
Whenever they pass massive spending, its clear they are not talking to American people. They are talking to the corporations that are going to benefit.
While it is admittedly just a single example, everyone else's experiences seem equally as anecdotal.
[1] - https://www.reddit.com/r/TIHI/comments/u4inmp/thanks_i_hate_...
Unfortunately, young adults, not unlike children, don't seem to have much awareness about the issue of this unsustainable ballooning debt, and as a group, are happier to demand more entitlements (such as UBI) than to call for austerity to get it under control. It's the opposite of what you want, unless your plan is to milk the country dry and leave it to die. Older voters are actually more likely to favor lowering spending, though of course they wouldn't vote against their own interests (e.g. cutting social security benefits).
In reality I can drag my great grandfather to the polls and vote for him so you should be able to vote for your kids.
Who is more impacted by government than parents or people caring for ailing parents?
You'd have to get people to vote 1000s of years before they're even born.
All the people glorifying capitalism don't see that Europe is a bonafide example of diligently following neoclassical economics maxims. The end result? The interest rate drops below zero in the debt brake country (Germany).
Banks are scared of passing the costs onto depositors because they fear their customers withdrawing their money as cash.
Now what? Are you going to eliminate cash? Are you going to introduce an exchange rate vs cash?
What mechanism do you propose for creditors to spend off their savings so that it is mathematically possible for the rest of the economic sectors including the public sector to pay off their debts and shrink the money supply?
What are you going to do about the constantly declining money velocity that, apparently, requires a constant expansion of the money supply?
The problem is that most of these things are defined by mathematical identities and cost benefit structures. Unless you assume some omnipotent market participants with infinite capacity to track everything akin in power to a hypothetical central planner, these problems will stick around and your feelings or sense of justice about what is right or wrong won't matter.
The empirical evidence is that interest rates have been declining for 800 years and that we have basically reached the end of positive real returns.
Go ahead and do more austerity and lower the interest rate even further.
Lysander Spooner's classic "No Treason: The Constitution of No Authority" is the application of that criticism to the whole state.
It's not practically possible for a person of any age to have voted to prevent the massive spending and subsequent debt created by it.
Unpopular opinion: after politicians reach the level that you recognize their name, they're all the same.
With all the "we can't let <the other team> ruin the country" rhetoric, you would think the swings back and forth would be like a wrecking ball. But no, for the most part, nothing meaningful changes. Each team gets their small window of power and starts airdropping money on their doners...ahem voters. Rinse, repeat.
What else can these politicians do? If they actually tried to reform something, they might goof it and it'll cost them their career. Gotta play it safe. After all, the status quo is that everyone already thinks they're all a bunch of corrupt boobs anyway, so nothing to lose really. Just go on CNN or Fox and talk shit about the other team; tell everyone that the other team is a bunch of corrupt boobs. That's money in the bank.
Let's say they actually pull one out of their butt and get some meaningful reform accomplished: well now there's one less thing they can scream about to rally you up to vote for the team the next time. So best to stick to the script.
They all look the same to me.
That's true, but its not a conspiracy either. Supermajority is unstable because the faction of the supermajority party closest to the main opposition gains power to draw policy closer to its preference by joining the opposition, so the split between the main parties has a strong force driving toward rough parity.
> The whole idea is to keep the country divided and to motivate you to vote.
It’s literally not, demotivated voters on the other side (or, in extreme cases, tricking them into failing to vote) is a strategy central to, and incentivized by, the electoral system.
> With all the "we can't let <the other team> ruin the country" rhetoric, you would think the swings back and forth would be like a wrecking ball.
They usually aren’t because our system is designed with lots of veto points, and the “swings” usually don’t swing all of them.
I'm not saying it's a conspiracy. Everyone is just acting in their own self interest.
> Supermajority is unstable
It hasn't always been a 50/50 split. It's a relatively new phenomenon.
> demotivated voters on the other side (or, in extreme cases, tricking them into failing to vote) is a strategy central to, and incentivized by, the electoral system.
Both can be true. They want to get more votes. They want their opponent to get less votes. They use whatever tricks they have up their sleeve to accomplish both goals. I agree redistricting and other dirty games are big part of that process. But I don't think it's controversial to say that another big part of the game plan is to sow division. Have you ever witnessed any organization that is more publicly derogatory towards their collegues than congress? It's a complete shit show.
> They usually aren’t because our system is designed with lots of veto points
That's true, and in my opinion this makes a vote for policitian X even less important, despite all of the "the future of our country is at stake" talk we hear every single election.
I think the opinion that all politicians are the same is:
1. Impractical, if the underlying assumptions were true: in a democracy you got the right to vote people out who misbehave. If you are blind to the differences between those people, you are effectively letting those who are a little bit worse than the others stay. And so the spiral moves downwards and you will at some point in your life wake up and ask how it came to this.
2. Purely Self-protective: taking part in politics and being involved and observant comes at an (emotional) cost. Pretending there is no difference is an easy way of not having to get involved while still having a thinly vailed excuse to continue complaining.
3. Untrue: Each body of government will always have a few crazy corrupt politicians and some that are extremely principled (and a mixture of those things in between). Our task is to punish those who are crazy corrupt by not voting for them, where we can, while we are still allowed to vote.
4. Popularistic: Many unpolitical people share that opinion, it is not an "unpopular" opinion, it is the opinion of that drunkard you meet at the pub. If you ask them to name you politicians that are currently in positions they can't name any. If you tell tell them the name of politician A who got fined for corruption and politician B who has a Life-Long track record of doing a thing they stood for in their twenties they can't tell you the difference
5. Self-Defeating: You don't have to inform yourself, because everything is "the same" anyways. This has the downside that all it needs to get your vote is to look or feel not the same, because whether they act different is something you obviously cannot tell. It is a bit like if you ask a person who thinks "all computers are the same" to buy one for you and they select one because it had "a nice color", except that this actually has a huge impact on people's lives and maybe even the survival of the human race.
Bingo. In my opinion, this is where we're at right now. Your choice as a voter is between bad and bad in part because the voting population has been stirred up to believe that the difference between the candidates is much bigger than it actually is.
I think your other points are reasonable, but you seem to be trying to shame anyone that refuses to pick a team instead of considering that maybe both teams stink.
I am not from the US or UK and in my country any given election features more than two viable options, so I am not sure what you're talking about here. But I admit I don't envy US-americans with their choice between center-right and far-right politics on the national stage.
What I said is more about individual political actors than about the parties they organize in. Of course it is also important to hold collective misbehaviour accountable, but in my eyes individual actions (both good and bad ones) deserve more attention.
Anyone who is pretending this entire story is new and different or anything other than the R crowd posturing for their base (as always) is trying to sell you beachfront property in Arizona. It may get as far as a short term government shutdown (austerity measures, furloughs) before enough donors make big enough threats for it to pass.
Learn your history and remember the events of your life - this is an established pattern and if it surprises you, it's your fault. (Not that it should be the pattern, but "what is" and "what should" don't often intersect).
This isn't a dem/repub issue. If you can't see that, you are falling for it just as much as anyone else. Its that kind of thinking that is forestalling reasonable measures that could be taken now instead of fear-mongering that the other side is going to leave old people eating catfood.
I never seen a D congress try to stop the debt ceiling being raised.
Both sides will go dirty over budgets, but this specific detb ceiling thing has a pattern. Show me how I'm wrong, don't just throw nonsequiturs at me that aren't about the thing I actually said.
Like it or not, the debt limit is the only time where we end up talking about it. As soon as its over, they are back to planning another infrastructure spending package. I'm still waiting to see what we got from the one in 2008 that was supposed to change everything.
If it was actually a concern, it would come up then too.
Regardless, that still doesn't address the debt problem.
Then why has every single debt ceiling crisis, starting with the 1995 abandonment of the Gephardt Rule raising the ceiling with the budget. been instigated by a Republican Congress during a Democratic Administration?
It would be hard to find a more definitively Republican/Democratic issue.
People are sick of the finger pointing. No one cares. Something has to be done about the debt or its going to end up biting us even harder than it already is.
This is a Republican issue full stop. The debt ceiling isn't about debt. It never was and it never will be.
It's only a Republican issue, because the only time they can make it an issue is when they have control of the Congress. You basically just admitted that Democrats don't care about the debt. You think it can just keep going up forever? You don't think eventually this thing is going to pop? The sooner we deal with it, the lesser the repercussions.
You'd think that indeed (dems are indeed, in a long leftist tradition, always ready, willing and eager to spend other people's money).
But, very unfortunately, the last few so-called "fiscal conservative" presidents have been anything but:
https://www.thebalancemoney.com/us-debt-by-president-by-doll...
I agree. You might read some tea leaves and conclude that democrats or republicans are better from this article. I got the impression that the parties are very similar. There is no party that is the "obvious" choice. The debt goes up either way.
My only opinion is that the republican party is behaving far far more childish in public.
Maybe a couple places in Latin America, but those countries have a habit of electing the wrong autocrat and utterly collapsing.
> Not China
Hence especially China.
Scale of PRC moving workforce from currently 25% skilled to 70-85% over (developed economy level) next few generation even with net population decline is roughly creating 3-5 new Japans, or another 1-1.5 US worth of high productive divident. Within a few generations, through system largely with good track record ability to move up skill/value chain. Most other developing countries have been spinning wheels for too long to take face value postive prognosis seriously. But PRC doing so at PRC scale is special case, no other country is structurally able to replicate this feat, because they lack scale (US even with immigration), or coordination (India on other in same pop class but systemically incapable and not trending towards being so).
I mean China regarding pop growth. China will be fine because like you said, highly skilled workforce and fully developed modern infrastructure. And I think AI and robotic automation will fill the void of population decline.
Mainly I'm alluding to the up and coming places that aren't developed. With all the negativity out there now, I see tons of potential - but it's outside of the western world (in particular, outside of Western Europe).
I agree there's a lot of potential, but IMO forces working against pop growth potential is increasing. I'm more weary of associate pop growth with assumed developement potential, there some analysis showing old pop heavy export oriented industrial model working less well - trend last few decades is industrialization opportunites being milked dryer sooner and at lower levels of income. What helped East/South Asia is may not be uplift LATAM or Africa to nearly same degree. Geopolitics and labour saving technologies is going to remove a lot of human potential from being realized, meanwhile a lot of the govs of developing countries are futzing hard themselves.
I'm feeling we're entering era where developing opportunties will be limited, and more people will simply mean more people left behind. And if developed countries with declining pops decide to pivot to immigration, brain drain from developing countries is going to get harsh, especially with opennings in western highered if PRC decides to turn off talent taps i.e. PRC demphasising English to limit talent flow out in future gens. If India gets wise decides to not export their demographic divident away, that's ~2M extra braindrain west will be taking from global south. Countries with 1B+ may have surplus to keep going, large countries with 100s of millions may not.
TLDR is I think potential is going to be harder to realize going forward.
Can you explain this further please?
Our politicians play this game then wonder why other nations are starting to coalesce around other reserve currencies.
The debt ceiling fights only started when BHO won the presidency, 15 years of this nonsense is enough.
But the point is, repeatedly testing legal corner cases and economic disruption on basic things like will our govt reps allow the govt to spend what they told it to spend is shooting ourself in the foot for political theatre.
Nations want a stable financial foundation to transact between other nations. They want a stable reserve currency that doesn’t inject added disruption from political instability. Until recently that was the US dollar that was stable beyond all other currencies.
The Economist has never been just 'straight up journalism', so I expect them to have an informed opinion. Maybe I disagree with it in some cases, and that's fine, but I find this "on one hand... on the other hand" stuff where they go out of their way to dig up something to say for both sides insufferable.
Sometimes there is an objectively bad option in a political debate. Failing to raise the debt ceiling is one of those. We can have all sorts of debates about the US's debt and how we should cut expenses or raise revenue, but defaulting on our debts to "win" that debate is an objectively bad approach and journalists should make that clear.
Is it really Tax and Spend? Or is it Spend and Tax.
So for example in 2020 QE cycle in UK the UK gov would spend something like 100BN a month, and would fund that out of borrowing - so it would put 100BN of bonds (gilts) onto the market - which were immediately bought not by pension funds but by the Bank Of England - so basically the UK government owes itself something like a trillion pounds worth of bonds - around 40% of total UK debt.
Exactly how does the UK government owe itself money? Our debt to GDP ratio is about half of what everyone says simply because the government printed money.
As long as that reflected real world purchasing - nurses and so on - then fine.
https://www.congress.gov/bill/118th-congress/house-bill/2811
"swingeing": (chiefly British) : very large, high, or severe
Anybody that thinks lowering taxes spurs growth and thus revenue, then what happens if taxes go to 0, shouldn't government revenue go to infinity. This whole, lowering taxes spurs the rick to create more growth is a false narrative.
History has not shown that.
An entirely unempirical claim and a napkin diagram are not the same thing as “history”.
> It’s a maximization problem under a curve not some simple linear equation to determine where tax rates should be set. We are arguably close to already having a rate that yields the most collection.
“Arguably” is a claim that a reasonable argument with some basis beyond pure speculation can be made for the conclusion offered, but…I’m not seeing the argument for the claim that there are no tax rates in the current system of taxes which could be increased that would lead to a substantial net increase in tax collections. Care to present the argument?
If the debt is supposed to be no higher than set percentage of the GDP, and the GDP drops, shouldn't the debt-ceiling also drop? Or is setting a debt-ceiling just so much bullshit theatrics that should be done away with entirely?
very much worth a read in that context:
https://comprehensivemoney.com/blog/thriftville-squandervill...
Nobody cares. The whole thing was a scam, it never actually mattered that much and the entire argument about government debt has basically just been an organized effort to have a reason for the government not to help people.
The debt ceiling is complete bullshit, a totally manufactured crisis that doesn't even make sense on paper. They only reason it's happening at all is because the right-wing Democrats thought that instead of just killing it when it was easy to do, they'd use it as an excuse to cut social programs by pretending it had to happen to compromise with Republicans. Then that clever idea fell apart.
But it still doesn't matter. It has never mattered.
Where it does matter is as an excuse to push other agendas through with "emergency" bills to raise it.
So politicians vote to borrow against this fund to pay for an astronomical defense budget then unsurprisingly start "sounding the warning" that social security will run out of money...
It has an instant impact to value attributed to the currency, which then impacts imports/export prices, which then impacts economic activity.
Look at what's happening in South Africa - they thought they issue debt/ print money to paper over social issues, and everything would be Ok. They are finding out that analysis was incorrect.
Following this logic, why pay taxes at all? If the amout of debt the USG taking on is irrelevant and a "scam," then why not just set tax rates to 0%?
The GP's facile and surface level thinking on this issue is click bate content but doesn't give any of us more insight into the meaning of a debt ceiling, budget decifits, and the problems/solutions surrounding them.
Using those metrics, interest rates, and inflation, to figure out what's going on, makes sense. Using nominal national debt doesn't.
And worrying about the "debt ceiling" is a complete and total scam. It's utterly meaningless and the only reason it exists is because people thought it would be a clever political tactic to use in cutting social insurance.
How long would that go for and at what point would you eventually have to say ok let's turn off the printer because there are consequences we haven't been paying attention to.
You could print millions of dollars and send it to people, but that wouldn't make houses come from nowhere, so it would just increase inflation.
On the flip side, you could print millions of dollars and use it to build housing and infrastructure and fund education in the trades and so on and then it would actually help houses get built.
And so on. The point being that the notional deficit doesn't really matter at all. What matters for increasing wealth is the ability of the country to produce material wealth, and government spending is either helping that or not.
Inflation isn’t a natural mechanism , it’s a way to get people to work harder and longer in exchange for a lower quality of life.
The inflation curve shot up in 1971 as a deliberate policy to compensate for a doubling of the work force. Twice as much time spent at work for a lower quality of life.
Money and debt are just proxy indicators for time. Vote like your life depends on it, because it does.
Sure, why worry about debt.
If the debt is held internally, we'll just tell the citizens to get over it.
If it's held externally, we'll send in the killer robots (via some loser proxy country, of course) until the debt is pardoned.
Why worry indeed?
Domestic debt could be traded in for a permanent tax credit.
So instead of controlling our own destiny, we have to hope for good terms from negotiations with the holders of that debt - who can apply increasingly more leverage as the amount of debt they hold increases?
Much like Trump, many of the reps in place seem to lack basic shame, which makes them dangerous. Most of the processes and norms we have in place assume some level of shame to act as a breaker. If you have just one person acting out, the system might survive. When you have dozens, all acting without shame, we get in to new uncharted territory.
The Republican Party in Congress has been since at least 1994, which is why they have engineered debt ceiling crises at least once in every Democratic Administration since the Congress elected in 1994.
The current lot in charge is more of the “burn it all down” sort which isn’t catering to regular rich people, but rather is catering to QAnon’ers. So, it’s less clear that it’s all just posturing and how far they’ll go with such posturing.
The "debt ceiling" is a distraction from the real problem. It's a dumb political football.
The debt limit has nothing to do with budgeting or spending limits. It is a foolish hack in US law that lets the Treasury borrow money to pay for our spending already authorized.
Ideally it would go away entirely.
It's just a political lever that they discovered, where pulling it damages the country, but somehow scores political points, so they are pulling it over and over and over again.
Stop rewarding them for it.
If they actually gave two craps about the debt, they wouldn't vote for a budget where expenses exceed revenue. But doing that wouldn't score them political points, so...
The issue is not whether we reach a sovereign debt crisis, it is when we reach it. Sure, we've been able to avoid it up to now. But eventually something's going to give.
No, debt ceiling crises are engineered by the GOP less frequently than that (2011 and 2013 were the closest in sequence, IIRC.)
There’s sometimes media speculation about whether one will be engineered, and that’s more frequent than it actually happening. Maybe you are thinking about that?
> How to avoid this sorry fate? The economic prescription is straightforward; the politics of delivering it are anything but. Even before the interest-rate shock, it was easy to anticipate that deficits would increase over time. The biggest share of federal spending is mandatory expenditures on social security, health insurance and the like, which are prescribed by laws and not subject to the vagaries of the annual budget-setting process. Already big, they will bulge as the population ages. Annual spending on income support for the elderly will be as much as all spending on education, the environment, national defence, science and transportation by 2033.
> The government estimates that trust funds which help bankroll both social security and health programmes will be insolvent by the early 2030s. At that moment America would face a basic choice between slashing benefits and raising taxes. A similar calculation will apply to all other aspects of the federal budget: some combination of reducing expenditures and raising revenues is the only way to prevent a crippling rise in the federal deficit.
What is the federal government's track record past 30 years at achieving a balance of either of these things?
It's worth mentioning this happened under a Democratic president and Republican congress, not far from what we have now.
[0]https://fred.stlouisfed.org/series/FYFSD
Edit: added citation
How much would spending need to be cut by, what programs will actually accept these cuts, how much can taxes realistically be raised by, why won't there be lobbying/special interest/loopholes to prevent this?
You could also try to raise taxes without stifling growth (and thus reducing revenues), but that's an even harder technical problem to pair with a similar political problem. Personally I'd be in support of a constitutional amendment that caps Federal revenues at 20% of GDP, so I wouldn't be on board for this, but to each his own.
Take a look at page 39 in the latest budget summary[0] and see if you can find the right places to raise revenues and cut spending to eliminate the $1.148 trillion deficit for 2023.
[0]https://www.govinfo.gov/content/pkg/BUDGET-2022-BUD/pdf/BUDG...
In 2023, half the members of Congress believe in Qanon and Jewish space lasers. And the same is true of the voters.
Also, did The Economist write an article like this when Trump was doing his "big, beautiful tax cut" or does it only matter when Democrats are in power?
The article says exactly this.
You can't just rack up debt forever, and just assume that we'll pay it back later WITH INTEREST. You also can't just "cancel" debt; the bill eventually comes due.
[1] https://en.wikipedia.org/wiki/Greek_government-debt_crisis