As a fiscal conservative, I am worried about our nation’s future. The public debt (on which we pay interest) is now 75% of GDP, the highest level since right after WWII, and growing steadily. Furthermore, our economy has just barely recovered from the Great Recession and is expanding too slowly to revive widespread prosperity. Neither of the two main presidential candidates, Hillary Clinton nor Donald Trump, is talking seriously about our huge debt and neither has a credible plan to boost economic growth.
Already entitlement spending (Social Security, Medicare and Medicaid), and interest payments on our debt, use up 2/3 of all federal tax revenue. And spending on each of these entitlement programs is growing faster than the economy as a whole. Interest rates will eventually rise from their current rock bottom level. When this happens, interest payments on our growing debt will increase rapidly.
In 2032, just 16 years from now, spending on entitlements and interest payments is projected to consume all federal tax revenues, assuming a steady 18% of GDP level for tax revenue.
There are three possible ways to offset this bleak picture:
Speed up economic growth. This should, of course, be possible but it will take a major shift in thinking to accomplish.
Increase federal tax revenue. Suppose that federal tax revenues were raised by 1% of GDP, or $180 billion per year. This would at least temporarily put our debt on a downward path (as a percentage of GDP). But it would be very hard to accomplish politically. Mrs. Clinton, for example, has proposed raising taxes by $100 billion per year which she wants to spend entirely on new programs rather than reducing our annual deficits.
Reform entitlement programs. This is by far the best way to address our debt problem, and the only effective way in the long run. But, again, it will be very hard to accomplish politically.
Conclusion. If the U.S. cannot get its debt and slow growth problems under control, it risks losing its status as the world’s major superpower. This would be a calamity for both our own national security and the peace and stability of the entire world.
In my last post I said that Donald Trump won the first presidential debate, in spite of his uneven temperament, because he was more correct on the issues.
One of the biggest problems our country faces is slow economic growth, averaging only 2% per year since the end of the Great Recession in June 2009. This compares with an average rate of growth of 3.5% from 1950 – 2000.
In fact, even the recent job growth we have seen is now leveling off. Such slow growth is very dangerous long term for many reasons:
Massive Debt. Our public debt, on which we pay interest, is now 75% of GDP, the highest it has been since right after WWII. CBO predicts that this percentage will keep getting steadily worse without major policy changes. Faster growth means more tax revenue and therefore smaller annual deficits. It is imperative to put our accumulating debt on a downward path.
The Need for More Jobs and Better Paying Jobs. The best way to achieve broad based prosperity, and minimize populist disruption, is to create a tight job market where employers have to compete for employees. This is accomplished by making the economy grow faster.
Keeping Ahead of China. In 2009 China’s economy was 1/3 the size of ours; now it is 60% as big. In other words, China will soon surpass us economically if we are unable to grow faster. This would risk losing our worldwide lead in such crucial areas as new technology and financial depth, as well as our superpower status.
Reducing Student Loan Debt. The best way we can help former students pay off their college debt is to have good jobs waiting for them when they leave school. The faster our economic growth, the better we can do this.
Conclusion. Both our own individual success in life as well as the overall status of our nation depends upon the availability of opportunity. This is why economic growth is so important and why it is dangerous to let it lag.
The U.S. economy has only been growing at the rate of 2.1% since the end of the Great Recession in June 2009, almost seven years ago. Such a slow rate of growth means millions of unemployed and underemployed workers and only small salary raises for tens of millions of others. The New York Times economic journalist, Eduardo Porter, observes that we have “A Growth Rate Weighted Down by Inaction.” He points out that:
Our economy is adversely affected by the gradual shrinkage of the work force as a share of population as baby boomers retire and the one time surge of women into the workforce in the 20th century has ended.
A second factor is a persistent decline in productivity growth over the last dozen years.
A pessimistic forecast by the Economic Cycle Research Institute foresees growth of only 1% per year for the next five years. The Congressional Budget Office projects more optimistic productivity growth at 1.5% per year, which added to workforce growth of .5% per year, would amount to total growth of 2% per year for the next ten years.
Mr. Porter goes on to say that there are concrete reasons why productivity growth is so slow:
Hiring is growing faster than capital investment. This is because most job growth in the last decade has been in (low productivity) services instead of (high productivity) manufacturing.
Too many restrictions on educated immigrants. Relaxing these restrictions would increase entrepreneurship.
Under training of skilled workers. We need more vocational and career education.
Many people, including myself, have pointed out ways to alleviate these problems and speed up economic growth, for example see here. It is most unfortunate that our dysfunctional national leadership cannot figure out how to work together to get this done.