The National Debt: Getting in Touch with Reality

How bad is the national debt really?

David Walker, the non-partisan former Comptroller of the United States declared that if we were each handed our own personal share of the national debt, we’d each owe five to six times what we earn in income each year.

As bad as that sounds, it gets much worse.   When unfunded entitlements like Medicare and Social Security are added to the equation, each and every citizen owes 25 to 30 times what he or she makes each year.

Let Walker’s numbers sink in for a moment.

A family making $50,000 per year owes between $1,250,000 and $1,500,000.

Only a nuclear Armageddon could harm the United States more than our own fiscal negligence.    But unlike an attack from abroad, the looming catastrophe will be entirely self-inflicted.

It is more than a little discouraging to note that only a minority of our elected leaders have demonstrated through their actions any real commitment to address this great fiscal crisis.

Senators Kent Conrad (D-ND) and Judd Gregg (R-NH) were the sponsors of a bill that would have mandated a special bipartisan commission to address the federal deficit.   The commission would have been composed of eight Democrat and eight Republican Members of Congress, plus two representatives from the Administration, including the Secretary of the Treasury.  If 14 of 18 members of the commission had agreed to a proposal to restructure Social Security, Medicare and / or Medicaid, the law would then have required the proposal to be put before Congress for an “up or down” vote, no amendments allowed.

The Congressional vote would have required a super majority of 60 votes, perhaps an unnecessary and unwise burden, but the commission would have focused the government’s attention on the deficit.  The clean “up or down” vote on the commission’s recommendation would have compelled every Member of Congress to take a stand on a bipartisan proposal to address the nation’s fiscal crisis.  The deficit hawks could easily be separated from the at-the-trough hogs and rapid ideological dogs.

The Republican leadership in the Senate had long supported the commission proposal.  Senate Minority Leader Mitch McConnell explained in May why it was so important to act:

We must address the issue of entitlement spending now before it is too late. As I have said many times before, the best way to address the crisis is the Conrad-Gregg proposal, which would provide an expedited pathway for fixing these profound long-term challenges. This plan would force us to get debt and spending under control. It deserves support from both sides of the aisle.

Then inexplicably, when it came time for a vote, Mitch McConnell along with John McCain and four other Republicans flip-flopped on the commission and voted against it.
Did the Republicans cave to pressure from the Tea Party movement?  John McCain and other incumbents are facing challenges for their seats from the right.  Did the Massachusetts special election convince them that they were better off waiting for the fall elections in hopes of capturing a majority in at least one chamber of Congress?  In any case, it’s hard to construe the Republican betrayal as anything but politically motivated.

Conrad – Gregg was defeated in bipartisan fashion on February 4 by a vote of 52 to 42 in the US Senate.  Here is a roll call list for the vote to help separate the deficit hawks from the other political animals.

Left-leaning groups mobilized against the measure warning that it would probably lead to means-testing entitlement programs.  Right-leaning groups opposed the legislation because it would surely call for higher taxes.  For practical as well as political reasons, both means testing and higher taxes will likely be necessary to tame the deficit.

President Obama, who had initially failed to support the commission idea, finally came on board.  Obama explained that he was disappointed by the bill’s defeat, but intends to go forward with his own similar commission, though it will not have the force of law behind it.  Suddenly the President sounds more serious about deficits than the Republicans.

The problem here is that the President always sounds serious about addressing the federal deficit.  The fact is that the President’s $3.8 trillion budget is $700 billion higher than the last W. Bush budget and twice as large as the last Clinton budget.  Commission or no commission, the best policy would be to simply spend less.

Senate Budget Committee Chairman Conrad believes that the high deficits proposed by the Obama Administration in the short run are a necessary Keynesian stimulus to help revive the economy.  But the Administration’s long-term projections are another matter.   Conrad tried to be gentle with his criticism of an Obama budget that would be balanced by 2020 but omitted interest payments on the debt, which would equal $800 billion.  “Put me down as a skeptic,” Conrad said. “When we start excluding things for any purpose we tend to mislead ourselves about the gravity [of the situation].”

Gregg, for his part, called the Obama Budget “fiscal insanity.”  He became particularly agitated when in a recent visit to Nashua, NH, the President proposed to take repaid TARP funds and loan them out again.  Here is Gregg reading the riot act to White House Budget Director Orszag.

Of the Obama budget, Gregg stated that while the budget in the short run is a problem,

Spending continues to go up, and taxes can never catch it because the spending is going up so fast. They’re taking the size of the government from 20 percent of the Gross National Product up to 25, 26 percent of the Gross National Product. That’s simply not affordable. That means you’re adding a trillion dollars of debt to our kids’ backs every year for the foreseeable future. And at the end of 10 years, not only is it not coming down, it’s still going up!

Gregg gives the United States five to seven years to begin to get its fiscal house in order before the Chinese and other foreign lenders begin to demand higher interest rates.  At that point the United States will either have to monetize the debt, which will lead to significant inflation, or raise  taxes to such crippling levels that the economy will grind to a catastrophic crawl.

Just how pernicious the deficits are in the short term is obviously open to some dispute, but not so the long-term structural deficits that will result from exploding entitlement outlays.

Reflecting on the rejection of the deficit commission idea, Walker declared:

Frankly, a number of senators caved to pressure from the far right and far left and voted against the commission proposal. We have people on the fringes with rigid ideologies that aren’t in touch with reality.

On the other hand, Walker seems more optimistic than usual.  He is certainly feeling less lonely.  When asked what can be done he replied:

You have to go over their head and outside the Beltway.  Go to the American people. And, believe me, they get it.