In today’s Twitter-driven news cycle, the national media and political establishment alike have spent little time of late talking about America’s fiscal future. Politicians on both sides of the aisle seem reticent to even broach the subject of the national debt or take proactive policy measures to ensure a stable fiscal future.
The lines of red ink are still there, though, and poised to grow at unprecedented rates. J.H. Cullum Clark, a Ph.D. economist at the George W. Bush Institute, has begun working to outline the issue and explore what can be done to address the growing indebtedness of the U.S. His first piece on the subject leads with a poignant summary: “the numbers tell an unmistakable story, and the laws of math cannot be defied.”
The story of the numbers
The latest projections from the Congressional Budget Office have the federal government’s deficit hitting $806 billion this year. That’s 4 percent of GDP, and up nearly $150 billion from last year. Assuming no policy changes, this figure is projected to grow to $1.3 trillion by 2022, and to $1.8 trillion by 2028, a staggering 6 percent of GDP.
To be clear, this is the amount that the government is expected to add to its total national debt each year. That figure stands at $14.7 trillion as of last year (77 percent of GDP). Should the budget deficits continue at this rate, the United States is on course to reach levels of debt comparable to Japan and Greece (the latter of which, it should be noted, is effectively bankrupt).
The driver here is not a lack of tax revenue, which is projected to stay steady at roughly 17 percent of GDP each year, but the growing cost of the big three entitlement programs: Social Security, Medicare, and Medicaid.
The effect of the laws of math
What does this mean for American growth and prosperity? As the trio of entitlement programs balloon with the aging Baby Boomer generation and the interest on the national debt swells, Cullum Clark predicts that military and non-defense discretionary spending (which includes, among other things, infrastructure, law enforcement, and basic research) will be the first to go.
It’s not hard to imagine the adverse effects of a decline in this spending. With taxes at historic highs to fund entitlement programs and keep the national debt stable, private capital investment would be hard-pressed to take the place of government-funded research, education, and infrastructure initiatives. Instead, rival powers like China would be (and already are) all too happy to step up and fill the innovation vacuum as the world’s technology leader.
Another big concern is the increased risk of a financial crisis, which could erupt if investors became seriously worried about the creditworthiness of U.S. bonds and securities.
Is there anything that can be done about the budget deficits chewing up more and more of U.S. GDP? Yes, says Cullum Clark, but it won’t be easy. In the coming months the Bush Institute’s SMU Economic Growth initiative will be exploring how Americans can address the pro, including changing how Social Security calculates benefits and reworking some of the structural inefficiencies and misguided incentives of Medicare.
“America has faced down tougher challenges, and we can undoubtedly solve this one,” says Cullum Clark. “But the longer we wait, reforms will become even more painful, especially for vulnerable Americans who depend upon a secure safety net. It’s time to get to work.”
Andrew Collins cut his teeth in politics as a congressional campaign staffer during the 2012 election. Since then he has worked in Washington, D.C. as the digital media manager and as a staff writer at the Franklin Center for Government & Public Integrity, and is a recent graduate of the Trinity Fellows Academy (class of ’17). His work has appeared in Politico, US News & World Report, The Chicago Tribune, The Daily Caller, and The Hill. He lives in Seattle, WA.