Thomas Donlan of Barron’s has some concerns about the latest numbers associated with federal debt.
Don’t worry about a thing, folks. As John Maynard Keynes said, in the long run we are all dead. Those who think about the long run are wasting their short time on Earth.
But the long run is getting shorter. The Congressional Budget Office published its annual long-run projections of deficits and debts last week. It was no surprise and no concern to most Americans. What need is there to worry, when the so-called Great Recession is behind us and we’ve seen our deficits cut by two-thirds?
We are only borrowing about $450 billion this year—about 2.7% of our gross domestic product—and we only owe about $13 trillion, according to the most common way of figuring. That’s only 74% of our GDP.
Only? A mere 15 years ago, the U.S. was running a small budget surplus and our national debt was $5.6 trillion, which was 34% of a smaller GDP.
The current year’s deficit does look small in comparison with the deficits incurred between 2008 and 2014, and especially compared with the peak year, 2009, when the deficit was $1.4 trillion and 9.8% of GDP.
The $13 trillion debt is only part of what we owe. It’s the direct borrowing from U.S. and foreign investors, including foreign governments. We haven’t included $5 trillion that has been borrowed from the oxymoronic government trust funds. Social Security is the largest of about 100 such funds.
The $5 trillion is often considered unimportant because the Treasury owes it to other government entities. In reality, those other entities are holding Treasury bills, notes, and bonds on behalf of beneficiaries. Eventually, the Treasury must redeem those securities, giving the trust funds cash raised by issuing regular Treasury debt.
Thus, the national debt should be reported as $18 trillion, or about 100% of GDP.
Anyway, that’s not the biggest part of U.S. liabilities. Many Americans believe that their prospective benefits flowing from existing social programs are guaranteed by the government. That’s not so in a contractual sense, but future benefits from Social Security, Medicare, Medicaid, government and military pensions, and many other programs with dedicated trust funds are guaranteed by the promises of politicians. Any politician who is serious about keeping those promises has to deal with the consequences for taxes, spending, and borrowing.
In budget lingo, they are “mandatory” programs, which means that their spending was put on automatic pilot by acts of Congress years ago.
