Why Our National Debt Is a Very Serious Problem for All Americans, but Especially the Poor


Congress has just postponed the debt ceiling until December 8 but at least they didn’t repeal it.  It is crucial to retain regular and explicit debt ceilings as a reminder of the urgency of putting our debt on a downward course (as a percentage of GDP).
As a reminder:

  • The debt now stands at 77% of GDP (for the public part on which we pay interest), the highest it has been since right after WWII. The $15 trillion public debt right now is essentially “free” money because interest rates are so low. But interest rates will inevitably return to more normal, and higher, historical levels and, when this happens, interest payments on the debt will skyrocket.
  • The entitlement programs of Social Security. Medicare and Medicaid are the drivers of our debt problem because their costs are increasing so rapidly. Medicaid costs the federal government almost $400 billion per year. Medicare costs the federal government $400 billion per year more than it receives in FICA taxes and premiums paid.

The attached chart demonstrates the scope and urgency of the problem.  By 2032, just fifteen years from now, all federal tax revenues will be required to pay for Social Security, Medicare, Medicaid and interest payments on the debt. This means that all of ordinary discretionary spending: on defense, various government operations and social welfare programs will be paid for entirely from new deficit spending and, in the process, will almost inevitably suffer huge cutbacks.  The lower-income and poor people, who are the most reliant on government programs to get by, will be the most adversely affected.

Conclusion. Such a dreary scenario of drastically tightened government spending does not have to occur. It can be avoided by immediately starting to make sensible curtailments, not actual spending cuts, all along the line.  Do our national leaders have the common sense and fortitude to do this?

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Are We Doing Enough to Help the Poor?


Income inequality in the U.S. is getting worse and one reason is that the middle class is being “hollowed out” by a lack of sufficient job opportunities.
CaptureThe result is more people at the bottom end of the income scale.  Not surprisingly, it turns out that many of these low-wage workers are receiving public assistance, as documented by the UC Berkeley Labor Center, and the New York Times.
Capture1The authors point out that if these workers received higher wages, they would not require as much public support which, in turn, would save money for the taxpayers.  This is a true but not a practical means for helping the poor.  Employees are paid what they’re worth based on the law of supply and demand.  Companies will pay as much as they have to in order to find and retain well qualified workers.  Furthermore, a minimum wage which is too high will simply lead to a higher rate of unemployment.
There is really only one good way to raise the overall wage level, especially at the bottom end of the scale.  It is to speed up economic growth, thereby lowering the unemployment rate and creating more demand for workers.
This is exactly what has happened in Omaha NE where I live.  The official unemployment rate is 3.2% and there is a labor shortage.  A new minimum wage ($8/hour now, $9/hour next January) was approved by the voters last November.  But low-skill entry level jobs are paying $10/hour or more because of the scarcity of workers.
There are plenty of opportunities to succeed in Omaha.  Support yourself with a low-wage job and go to Metropolitan Community College to learn a high-skill, high-wage trade.  Most people are capable of following this route to a better life!