Deficits and Debt

Beginning in the 1980s, I became sensitized to the politics of national debt and deficits.  By sensitized, I only mean that I pay attention to the issues although never really coming close to a clear understanding of what to do about it.   The nature of the problem changed over the time and of course my understanding changed over time.

I found some logic in the idea that collective debt itself is not inherently bad.  For instance, at the local level the periodic referendums to issue municipal debt to fund various projects makes sense.  The debt is paid in the future during the time we will enjoy the completed projects.  The difficulty of extrapolating that vision to the state and national level is that I have virtually no understanding of the specific projects to know what the future benefits would be and whether the investment overall made sense.  I deferred to those who made the decisions that the debt was invested in some kind of benefit at the time the service of the debt has to be paid.  That benefit may be a direct improvement or it may be the avoidance of something that would cause pain.   The logic is that the expense of servicing the debt is balanced by continued benefits derived from that investment.

I found some logic that the economy has its ups and downs.  The revenue sometimes comes in short, and other times it catches up.  Also some expenses are unpredictable.  Again at the local level, an uncommonly cold and snowy winter has resulted in more expenses than usual for snow plows, salt, and pothole repair.  Although I am aware of similar examples at state and national level, I am sure I know not even a significant fraction of these effects.  I defer to the government to be managing these expenses well.  However, in contrast to the above return-on-investment concept, I would expect this type of debt to not grow over the long time periods.  There should be periods of lower costs or higher revenues to make up for the periods where debt was needed.  Although I have some doubts, I’ll grant the benefit of doubt to the prospect that this type of debt is managed competently.

I have found some logic that there are national emergencies that require unusual expenses or losses of revenue that have to be acted so quickly there is not enough time to carefully consider the best investment.  I accepted that the financial crisis of 2008 to be that kind of crisis.  No matter what the cause was, I agreed with the basic premise for the necessity of the action at that time.   I accepted the policy at the time even with the recognize of a high risk that that money will never be returned from that sector.  I guess the possible return is that things would be a lot worse right now if that did not happen, but there is no way to know.  Unlike the first case of investments, this kind of action is done rapidly without careful planning and analysis.  I admit this is a little irrational: the urgency of the situation doesn’t automatically result in a wise choice.  However, I know that I can be scared into making irrational choices.

What I have a problem with is the past several years where we have unexplained high deficits.  It seems both sides of the debate agree that the deficits are too high but because they can’t agree on how to cut it they agree to keep the wrong answer of too high of deficits.  I just have a hard time seeing this as responsible government.  How can we say that the deficits are too high and yet at the end of the year commit to a new year with unacceptably high deficits?  It seems the government’s answer is to stop sounding the alarm: the growth in national debt that alarmed us a couple years ago is no longer alarming.  Also, now it is OK to grow the debt so that a deficit is passed with no meaningful increase in revenue or cut in cost.  It is now OK to extend debt limit without any constraint for another year.  The best we can do is keep doing what was once widely agreed to be the wrong thing to do.

I know there are arguments that the debt is not alarming, that it can go much larger.  But those arguments make an assumption that our country’s future is bright.  We assume that our country will retain our relative economic might with respect to other economies.  More than that, we assume our economy will not only grow but grow much faster than it has in the past few years.  There is scenarios where this can happen.  However, I don’t see this happening.  I’m optimistic in the sense that the rest of the world’s economies will become wealthier but this will reduce our relative strength in all areas of our economy.  I also see that the big burst in benefits from technical advances of the past century are behind us.  We still travel by sub-sonic jetliners that were flying 50 years ago.  We still have no idea how to harness fusion energy for power plants.  All of the easy stuff has been exploited already.  There may be amazing advances in the future but they will not deliver the economic benefits we saw in the past.

My optimistic scenario is that overall, economically it is going to remain the same as it is now.  It may contract a little, not a whole lot, maybe back to the levels of the 1990s.  I am also comfortable with this scenario as it assumes growth in economies of other nations even while ours stagnates.   But with this scenario, I have a hard time supporting further avoidance of reducing the deficits.  I prefer revenue surpluses to pay down the debt to the level matches the scenario that our economy is not going to get better.  

The glorious days of rapid growth are behind us.

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