As a Matter of National Security, The U.S. Government Must Decrease Its National Debt

It does not matter what side of the political aisle one is on anymore. Left, right or in the middle, we must urge our elected leaders to cut spending, no matter how hard it hurts. And, we must raise revenue, even if that means raising taxes, no matter how hard that hurts either. It is not a matter of necessary versus unnecessary expenditures, or the fairness of the tax system. We are nearing the point where it just will not matter. The current ratio of spending to revenue is unsustainable, and it is getting worse.

The official United States’ national debt is in the neighborhood of $14.5 trillion dollars. This is somewhere around 92 to 95% of the entire United States gross domestic product (“GDP”). A country’s GDP is the total market values of all goods and services produced by workers and capital.

Thirty years ago, the United States’ national debt was around $900 billion, and was about 33% of GDP. Stating the obvious, the United States’ national debt is now about 14,500 times bigger than it was 30 years ago.

According to economist Laurence Kotlikoff, “[t]he Government is lying about the amount of debt. It is engaging in Enron accounting.” Kotlikoff is a co-author of The Coming Generational Storm: What You Need to Know about America's Economic Future. Mr. Kotlikof is a professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Research Associate of the National Bureau of Economic Research, a Fellow of the Econometric Society, a former Senior Economist, President’s Council of Economic Advisers,

The Congressional Budget Office has estimated that the national debt will rise to $16.5 trillion in two years, or 100.6 per cent of the GDP. Mr Kotlikoff has suggested that the debt is actually about $200 trillion, thirteen or fourteen times higher than the Congressional Budget Office estimates.

Kotlikoff reaches his conclusion based on CBO data. See, Kotlikoff, Laurence, “The U.S. is Bankrupt and We Don’t Even Know It,” (Bloomberg, August 10, 2010). The discrepancy between “official” United States debt and actual net indebtedness reflects a slight-of-hand in accounting for debt. Congress has labeled most of its liabilities “unofficial” to keep them off the books and far in the future.

Kotlikoff has said, “We have to think about the fact that unless the government gets its fiscal act in order we’re going to have the government printing lots and lots money to pay these enormous bills that are coming due over time.” That means high inflation, which will sap the remaining wealth and savings from every American.

Kotlikoff has pointed out that the International Monetary Fund (“IMF”) in July, 2010, effectively pronounced the United States bankrupt. Section 6 of the IMF’s July, 2010, Selected Issue Paper, stated, “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.” The “fiscal” gap referred to here is, in Kotlikoff’s words, “the difference between projected spending (including servicing official debt) and projected revenue in all future years.”

What the IMF is saying is that the US needs to, in rough terms, double its income tax revenue immediately in order to keep up with projected spending.

The upshot of all this is that the United States is spending too much compared to the revenue it is collecting. Unfortunately, if Kotlikoff is right, then just cutting spending is not going to get the job done. We are in the unenviable position of having to raise taxes.

However, by the same token, the government cannot keep spending at the break-neck pace it has been. We must bite the bullet in two ways: cut spending, even where it hurts, and raise taxes, even though it hurts. That will be the only way to save the United States economy in the longer term, because that will be the only way to stave off the government’s necessity to print money on a grand scale, thus causing even more pain through massive inflation.

Unfortunately, we may need to see the “Bush tax cuts” expire at the end of this year. However, that is not for their own sake, in order to “make the rich pay their fair share.” Unfortunately, it is because the government simply does not have the money to continue down its current spending path. If Kotlikoff is correct, the Republicans are going to have to bite the bullet on that point, for the good of the country.

Likewise, spending like a drunken sailor on shore leave must also stop. We must abandon all hope in “stimulus” packages, and cancel all earmarks and pet projects. We must cut even so-called “necessary” benefits to the bone, and create a new climate of governmental stoicism and frugality. In that sense, the Democrats are going to have to bite the bullet, for the good of the country.

Is the United States able to do what is necessary to really endure this time of trouble? Do we have elected leaders with enough courage? Is the American citizenry stalwart enough to bear it?

I have my doubts on both counts.