According to a recent PEW poll, Americans are in a pessimistic mood. Of course, there are a lot of things to be worried about right now, but things are not really as bad as they seem. Consider:
- The Pandemic. The pandemic is clearly subsiding. 94% of American adults now have Covid antibodies, either through vaccination or previous infection. This means that we have achieved herd immunity. The latest surge in new daily infections is also subsiding. In other words, the pandemic is on track to becoming endemic (routine) and we will continue addressing it in the same way as we deal with the common seasonal flu on an annual basis.
- Inflation appears to be leveling off at an annual rate of about 8% (8.5% in March, 8.3% in April, and 8.6% in May). The Fed will have to keep raising interest rates until the inflation rate comes down. This process could take a year or more and, in the meantime, there will be real pain for millions of people on fixed incomes. The current inflation was tripped off by the government’s fiscal stimulus in response to the pandemic and there will be political repercussions starting in November. But inflation is likely to be back down to its normal 2% level about a year from now.
- The Ukraine War. Ukraine wants to be free and independent and we are helping the Ukrainians defend themselves against Russian aggression. The Ukrainians themselves will have to decide how to end the war: drive the Russians out or reach a lesser compromise. But our willingness to defend democracy around the world is one important reason why America is so widely admired by other countries.
- Polarization. The current intense level of polarization in our politics is a sign of our vigorous democratic system in action. There are many contentious issues such as an increase in crime, abortion rights, gun rights, and K-12 educational policy which can only be resolved through the democratic process. The inter-workings can get messy, but this is how democracy operates in practice.
- National Debt. This is the one issue that I am less optimistic about. Our national debt is now over $30 trillion and growing rapidly. It will probably take a new financial crisis to force our national leaders to get federal spending sufficiently under control so that, at least, we stop adding to the debt and, therefore, shrink it as a percentage of GDP over time. As the attached chart shows very clearly, it is entitlement spending that is the main culprit in our massive and growing debt accumulation.
Conclusion. Many of our apparently severe political disagreements on such issues as abortion rights, gun rights and educational policy will be resolved through our normal, even if highly contentious, democratic processes. The out-of-control national debt, unfortunately, may require a major new financial crisis to force our national leaders to take major corrective action.