What will you be focusing on as you vote? For me, it will be the future of the economy.
I understand the passion around many of the issues the candidates are talking about: immigration, income inequality, taxes, defense and overseas wars, Supreme Court nominees, health care, Social Security and entitlements, the environment and regulations, and a host of other things.
But almost all of these issues are dependent on how well our economy does. The economy will dictate whether we can afford to pay the taxes to do all these things. The economy determines whether there are enough jobs for everyone and whether the government will be able to deal with the debt and all the entitlements.
US debt is climbing, and interest alone is more than we can afford
We now have $20 trillion of debt on the US books, plus $3 trillion of state and local debt. But we have only an $18 trillion economy. This means that our true debt-to-GDP ratio is about 125%.
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Of course, there are those who would say that much of that debt is money we owe ourselves, in the form of Social Security and highway trust funds, various pension balances, and so on – as if that means the debt does not have to be paid.
Social Security is going to have to be paid, whether the money comes from the trust fund or from the actual budget. It is something we owe to future recipients.
The interest on the debt is said to be about $250 billion for fiscal 2016. The chart below is from the Congressional Budget Office. It shows those annual interest payments growing to over $800 billion in less than 10 years. That’s triple what it is now.
That interest is net interest, after several deductions are taken. The Treasury Department says the actual interest expense for 2016 was $432,649,652,901.12 cents. That’s $432 billion and change, so you can see that almost $200 billion was deducted. But that too is money we are eventually going to have to pay. It is adding up as debt due in the future.
That debt is going to come due, much of it in the next 10 years. This explains the inordinate rise of interest paid over the next 10 years in the chart above.
Between Social Security and the various health and pension programs for government employees, the military, etc., we have unfunded liabilities of at least $104 trillion.
The facts are scary
Forty-three million of our citizens live in poverty. Fifty-six million are enrolled in Medicare. Almost 43 million of our citizens receive food stamps. We have lost five million manufacturing jobs in the last 16 years.
Median income is up just 3% in the last 16 years, while the median new home price has almost doubled. Ninety-four million people are not in the workforce. Fifteen million of them are actually unemployed, though the official number is only eight million.
You get the picture. It’s not pretty.
We don’t have much choice, but we must make one
National debt could rise to $30 trillion by the time the president is inaugurated in 2021. Current models suggest that interest on the debt could easily eat up more than 15% of revenues by then. That is not a sustainable model.
If we continue down the path we are on, it will be impossible to grow our way out of debt. A large tax increase won’t help much. It would just be a drag on growth.
We are increasingly refusing to make the difficult choices to deal with the big issues. This means we are left with the choice between a bad outcome and a very bad outcome. There will be no good choices left.
The outcome is likely to be economic deprivation for many of our citizens and depression-level unemployment rates. There could be an economic upheaval that will roil the markets unlike anything we have experienced.
We are going to have to make changes in the way this country is run and in the processes by which we allocate resources. And those changes are going to make just about everybody in the country uncomfortable.
The longer we wait to make those choices, the more difficult they become. Look at the chart below. It shows the amount of money spent in the various departments of government.
Entitlements, defense, and interest are the big items. Cutting some of the other items might help, but the only real solution is to deal with defense and entitlement spending. We need to figure out how to bring down the debt and interest expense.
Who will make those choices?
So when I walk into that polling booth, I’ll be thinking that we have to make some very difficult choices in the next four years. And I’ll be wondering who can step up to the plate and deliver those choices.
We are going to have to raise the amount of money we take from the economy in the form of taxes. And we are going to have to reduce the amount of entitlements and welfare that we pay.
Which candidate for president will be more likely to make the difficult political choices and compromises, with the very real prospect of thereby becoming a one-term president?
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