Each year, dozens of perfectly functioning aircraft are flown in a controlled manner right into terrain. As we saw in January with the loss of Kobe Bryant, it is one of the most deadly types of aviation accidents, yet perhaps the one most easily avoided. So why does it happen?
Often it’s as simple as losing focus on position due to worsening weather, fatigue, or procedural errors. External pressures can lead to “continuation bias,” the desire to get there at all costs. The temptation is to believe the situation won’t be that bad or will improve, despite data to the contrary. So we fly onward, confident in our path and unaware of the danger ahead — until the end.
In life, as in aviation, calamity can occur when we fail to recognize risks and act on them. With our attention now focused largely on riots, what if one of the most important issues threatening our economic future, and thereby our nation, is being largely minimized or ignored? Have we neglected the risk of our national debt?
A Spending Spree Makes Our Problems Worse
Consider that when President Richard Nixon took the dollar off the gold standard in 1971, the accumulated debt of the United States since the founding of the nation was about $400 billion, which equates to roughly $2.6 trillion in current dollars. To float government-mandated shutdowns over COVID-19, Congress passed the CARES Act at a price tag of $2 trillion.
Congress is negotiating another round of bailout spending that will likely cost between $1 trillion (Republicans) and $3 trillion (Democrats). Assuming the most conservative outcome of $1 trillion, that will put the total spent on shoring up the deliberately hobbled economy around $3 trillion. That means in the course of less than a year, to counter one pandemic, the United States has spent, and therefore borrowed, more than the total debt incurred from the time our Constitution was signed in 1787 to Nixon’s action in 1971.
It doesn’t take a Ph.D. in economics to understand the gravity of this kind of spending, but still, economists defend it to worried members of Congress on the basis that we have no choice. The airplane must keep flying, weather be damned. The experts are experts at minimizing risk. Perhaps we’ll suddenly experience growth rates not seen since the post-World War II period to climb our way out of this valley, or maybe rates will stay at historic lows.
We’ve become accustomed to addressing all our problems with more spending. When Barack Obama was inaugurated president in 2008, the federal debt had ballooned to $11 trillion. When Donald Trump arrived eight years later, it had almost doubled to $20 trillion. The debt clock now stands at $26,647,860,701,599 as I type this, soaring upward at a dizzying pace, and critically important “off balance sheet” liabilities for future obligations such as Social Security and Medicare have been estimated at triple that number. At what point must we question our national solvency?
Old habits are hard to break. In the post-gold-standard period, we’ve run deficits every year except for the 1998-2001 period (see chart below), while politicians avoid long-term questions about sustainability.
Graph: Federal Surplus or Deficit History
Voters Are Numb to the Numbers
Perhaps we voters are to blame. Congressional candidates reliably promise to bring home the bacon, just as we demand. Despite our “term limits” rhetoric, we faithfully send them back to D.C., over and over. Nobody wants to hear that entitlements cuts might be required to make things balance, nor do we have the political will to maintain debt ceilings. So we fly onward.
Graph: A History of Busted Debt Ceilings
A Gallup poll showed that from 2010 to 2019, when the debt mushroomed from $14 trillion to $23 trillion, the percentage of voters who cited the federal budget deficit as an issue they worry “a great deal” about fell from 64 percent to 50 percent.
Another Gallup poll taken as we rolled into the 2020 election year showed the deficit ranks 10th on the list of voters’ “extremely important” priorities, landing just behind “distribution of income and wealth in the U.S.” This means many voters believe the implosion of the dollar is less important than whether it’s redistributed. Democrats, in particular, ranked the issue near dead last.
For the average American, the verbiage of millions, billions, and trillions causes the whole thing to lose meaning. Who can contextualize so many digits? Does it matter, when the median individual income in the United States is roughly $34,000, and each taxpayer, 151 million of us, owes $176,000 to cover the debt (a figure itself growing rapidly)?
Our debt-to-GDP ratio, the common metric to assess taxpayers’ ability to cover the nation’s debt with productivity and output, is at a record 136 percent and climbing. What effect will the increased cost of servicing our debt has on our economic growth?
Nondiscretionary spending, such as Social Security, Medicare, Medicaid, federal retirements, and welfare programs, consumes an ever-greater portion of our national budget, growing from 29 percent to 62 percent over the last 50 years. According to the Heritage Foundation, the big three of Social Security, Medicare, and Medicaid will consume all federal revenues by about 2050. At that point, every penny for discretionary items, including the military, law enforcement, education, transportation, and others, will have to be cut or borrowed.
Surely, human nature plays a part in the nation’s attitude toward this issue. Who fears that which they’ve never seen or experienced? Just eight months ago, none of us would have given a thought to the possibility of a pandemic, but events change us.
Don’t Fire Up the Printing Presses
As we move closer to Election Day, don’t count on either party volunteering to address this issue. They will kick the can down the road. But surely behind closed doors in congressional offices and the West Wing, some gather privately to discuss when the crash will occur and how to handle the fallout.
Obama’s Federal Reserve gave us a clue. Faced with a severely wounded economy after the 2008 financial crisis, the president needed the markets to stabilize. He wanted to force the trillions in cash sitting on the sidelines back into the equity markets, so the Fed lowered interest rates with a policy called “quantitative easing.” It was nothing more than printing stacks of money to buy back our own Treasury bonds, or the monetization of our debt.
Warning of such a scheme, economist John Maynard Keynes wrote, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
Is it hard to imagine that when our debt ultimately becomes unmanageable, the same tactic might be used? When you own the printing presses, anything is possible. Americans will soon realize that each dollar printed dilutes the value of those they’ve tucked away in their savings accounts, their retirement accounts, and their homes. Doing this again to cover our national debts during a crisis would effectively represent the largest tax ever inflicted on Americans, and it would be implemented without a single congressional vote.
When that day comes, with the dollar plummeting and inflation pushing the price of milk and bread out of the range of affordability, look for the press to livestream the so-called peaceful protests. They will likely ask how we never saw it coming.