A Letter from Birmingham Jail Why we cannot wait Martin Luther King, Jr., April 16, 1963
Yesterday was Martin Luther King Day and every year at this time we are reminded of his eloquent letter from the Birmingham Jail, “Why we cannot wait,” written to some of his hesitant supporters in the Spring of 1963.
African-Americans were tired of waiting so long for equal rights in their own country. On my own personal scale, I am so frustrated by the inability of our political system to address our massive debt problem, that I am getting organized to enter the 2018 Nebraska Republican Senate Primary against the incumbent Deb Fischer who has just voted (with the new tax law) to increase our debt by $1 trillion over the next decade.
Basically I am saying that our debt is so large and growing so fast that it will soon be out of control if we don’t take action to start reducing it very soon.
The public debt (on which we pay interest) is now 77% of GDP, the highest since WWII, and projected by the Congressional Budget Office to keep getting steadily worse. It will grow by $11.5 trillion in just 10 years to almost 100% of GDP and will reach 150% of GDP, double the current level, by 2047, without major changes in current policy.
A fiscal crisis, much worse than the Financial Crisis of 2008, will occur long before 2047 if nothing is done to greatly shrink our annual deficits which are again rapidly approaching the trillion dollar per year level.
The new tax law increases deficits by an average of $100 billion per year, and therefore makes it that much harder to shrink them down substantially. It is imperative for the two parties, Democrats and Republicans, to work together to figure out how to do this.
Conclusion. Our national debt is so large and growing so fast that it is virtually out of control. We need prompt and fairly strong action to turn the situation around. I have often discussed one major way to do this.
Six years ago I was a candidate for the Republican nomination for Nebraska’s Second District Congressional seat. I lost in the May 2012 Primary. After the November 2012 national election I began writing this blog It Does Not Add Up focused on fiscal and economic issues, mainly our large and rapidly growing national debt. I have now been blogging on this issue for over five years and the debt problem is just getting worse and worse. Here is where we are right now:
All 52 Republican Senators voted for the new tax law which, in spite of its beneficial tax reforms, adds $1 trillion to our debt over the next decade (after growth is taken into account).
The Congressional Budget Office projects our debt to grow by $11.5 over the next ten years. In FY2019, just one year from now, CBO projects the deficit will exceed will exceed $1 trillion and equal 4.7% of GDP. By 2047 federal debt will reach 150% of GDP, almost double the current 77%.
In our polarized Congress, Republicans insist on increasing defense spending, Democrats insist on increasing domestic spending and trying to put any limits on entitlement spending is very difficult. Republicans are willing to cut taxes but there is little enthusiasm for raising them.
The present stalemate will eventually lead to a new fiscal crisis, much worse than the Financial Crisis of 2008, without major changes in current policy. The thought of having to drastically cut many different spending programs in the middle of a huge fiscal crisis is horrifying.
Are there any alternatives? Calling a Constitutional Convention for balancing the budget, establishing term limits and/or limiting Congressional power (Convention of States), have created much interest but are long shots which may never happen.
Conclusion. Somehow or other we need to light a fire under enough members of Congress to persuade them to take our rapidly accumulating debt very seriously. Let me know (firstname.lastname@example.org) if you are willing to work with me to do something along these lines!
In a few days I expect to announce my candidacy for the Republican nomination for the U.S. Senate seat now held by Deb Fischer. She is running for reelection and apparently is quite popular in Nebraska. But she has one huge liability as far as I’m concerned. First of all, she is a big spender. But now as well she has just voted for the new tax law which will increase our debt by $1 trillion over the next decade. In other words she is flagrantly guilty of ignoring our very serious debt problem even as it continues to get worse.
People sometimes ask me why I am so fixated on the debt. After all, there are plenty of other important issues that we should be concerned about. The answer is that uncontrolled debt affects almost everything else government does because as interest rates increase, eventually interest payments on the debt will skyrocket.
Defense spending, so critical to our role as the world’s major superpower, which maintains peace and stability in the world, will be threatened.
Run-away inflation is likely to result from the buildup of the debt bubble and this will erode the economic security which is so important to our way of life.
The international standing of the dollar, so critical to our leadership role in the financial world, will be weakened.
Spending for programs such as education, research and infrastructure, so important to our quality of life, will be threatened.
By focusing so strongly on the debt issue, hopefully I will be able to persuade large numbers of people that I am really serious about taking strong action to address it effectively.
Conclusion. There are lots of issues which will come up on the campaign trail in a Senate race. But my campaign will be focused on our gigantic debt problem. If we can’t get our debt under control, then our entire way of life is threatened. It is that simple.
“I think this level of national debt is dangerous and unacceptable. My preference on tax reform is that it be revenue neutral. What I’m hoping we will avoid is a trillion dollar stimulus. Take you back to 2009. We borrowed $1 trillion and nobody could find that it did much of anything. So we need to do this carefully and correctly, and the issue of how to pay for it needs to be dealt with responsibly”
The world has seen remarkable human progress over the past 200 years. What has brought this about is specialization and trade, i.e. economic growth.
Since the end of the Great Recession in June 2009, economic growth in the U.S. has averaged just 2.1%, a remarkably slow recovery by historical standards. This has led to stagnant wage growth especially for blue collar workers. Finally growth is up over 3% for the past two quarters and wage growth is surging.
The U.S. corporate tax rate at 35% is not internationally competitive and encourages multinational corporations to move their operations overseas. A lower rate of 20% or so would encourage U.S. multinationals to bring their profits home and also encourage foreign companies to set up shop in the U.S.
What all of this means is that we still need tax reform (i.e. lower tax rates) but not fiscal stimulus.
The Republican tax plan now moving through Congress will increase our already outrageously excessive debt by $1 trillion over ten years, according to the Joint Committee on Taxation, the official scorekeeper for the U.S. Senate.
The Republican Congress will be making a huge mistake by implementing the current plan which has now passed both the House and the Senate. The GOP will no longer be able to make a credible case that it is the party of fiscal responsibility.
Conclusion. With a (public, on which we pay interest) debt of $15 trillion, and growing rapidly, the U.S. is approaching fiscal insolvency. The Republican tax plan will add an additional $1 trillion to this debt over the next ten years. This is unconscionable behavior.
Americans are a very fortunate people. We are protected by two oceans and friendly neighbors to our north and south. We are the strongest country in the world, both economically and militarily. We provide the world with cutting edge leadership in many areas such as technology, finance, energy production, scientific research and university education.
In short we live in a very successful, prosperous and complex society. We do have serious problems but they are being addressed by our elaborate legal and governmental processes and structures. Slowly but surely life in America is getting better and better all the time.
Given our country’s size, complexity and dominance in the world, it is inevitable that government will also grow in size and structure in order to take on new responsibilities. It is completely unrealistic to think that we can return to a more limited form of government that existed in the past.
When I say, then, that I’m a fiscal conservative, I am not advocating for less government but merely that we pay for the government that we have, in other words, act in a fiscally responsible manner.
And we are not doing this at the present time:
Our national debt, now 77% of GDP (for the public debt on which we pay interest), is the highest since right after WWII. It is predicted by the Congressional Budget Office that it will keep steadily getting worse without major changes in current policy.
The urgency of the debt problem is based on the fact that interest rates are now so low that it is almost “free” money. But interest rates will inevitably return to more normal historical levels and, when this happens, interest payments on the debt will skyrocket. Eventually this will lead to a Fiscal Crisis, much worse than the Financial Crisis of 2008.
The solution to this problem need not be drastic. Federal spending is growing by 5% per year while tax revenues are growing by 3% per year. If we would just hold spending increases down to 2.5% per year, the federal budget would be balanced in a few years and our debt would start shrinking as a percentage of GDP.
Conclusion. Spending restraint, with very few actual spending cuts, is all that it will take to put our debt problem on a path to solution. Surely we are capable of acting in a fiscally responsible manner like this!
This blog is devoted to fiscal and economic issues facing the U.S. Both the Trump Administration and the Democrats are working to speed up economic growth and I believe there is a good chance that this will happen.
However there is not nearly enough interest in addressing an even bigger problem: our national debt, is now larger, in relative terms, than at any time since the end of WWII.
This is a very difficult political problem because elected representatives would much rather say yes than say no to new programs and more spending. It is even more difficult to try to restrain the growth of, let alone cut, existing programs.
The Congressional Budget Office has recently published a long list of possible ways to decrease federal spending (or increase federal revenues) over the next ten years. It is interesting to pull out several of these suggestions to see what can be accomplished:
Program 10 year savings
Eliminate concurrent receipt of retirement pay and disability $139 billion for veterans.
Use an alternative measure of inflation to index mandatory $182 billion
Reduce funding for International Affairs Programs. $117 billion
Limit highway funding to expected highway revenues. $40 billion
Reduce the size of the federal workforce through attrition $50 billion
Reduce funding for grants to state and local governments $56 billion
Impose caps on federal spending for Medicaid $680 billion
Increase premiums for Medicare Parts B and D from 25% to $331 billion 35% of cost. Total $1595 billion
Conclusion. This brief list of budget restraints would reduce deficit spending by about $160 billion per year. This is significant but not nearly enough compared to the projected deficit of $685 billion for just the 2017 fiscal year alone. About 2/3 of the savings come from the two entitlement programs of Medicare and Medicaid. The idea here is to give specific examples of the sort of changes which will be necessary to seriously confront our debt problem.
As I frequently remind my readers I am a fiscal conservative and a social moderate. I usually write about particular economic and fiscal problems facing our country. But every now and then I like to step back and view our overall situation at one time. The last time I did this was here.
Let’s take another look:
The economy is puttering along at 2% annual growth with a relatively low unemployment rate of 4.3% and a good indication that faster growth, up to 2.5% annually, is right around the corner, see here and here. The economy, at least, is headed in the right direction.
Foreign policy. Long term our biggest problem is China, which has four times as many people as we do and is growing economically three times as fast. China will soon surpass us in both economic and military strength. Our best insurance for this inevitable day is to have lots of democratic friends around the world.
Global warming is real and getting worse. Our best strategy for dealing with it is a revenue neutral carbon tax, rather than depending on ad hoc regulations like the Clean Power Plan and ever increasing auto emission standards. If the U.S. demonstrates its seriousness with a carbon tax, it is likely that the U.S. and China (which is highly polluted) could work together to establish world-wide carbon emission standards.
National debt, currently 77% of GDP (for the public debt on which we pay interest), is predicted by the CBO to keep getting steadily worse (see chart) without major changes in current policy. Right now our approximately $14.3 trillion public debt is almost “free” money because interest rates are so low. But sooner or later interest rates will return to more normal levels and, when this happens, interest payments on the debt will rise by hundreds of billions of dollars per year. This will inevitably lead to a severe fiscal crisis, far worse than the Financial Crisis of 2008.
Conclusion. I am relatively optimistic that we can maintain good relations with China and will have the good sense to better control carbon emissions. But our debt problem is politically very difficult to address because it will require spending curtailments. How do we successfully address such a huge problem?