A Practical Issue Facing the United States

One of the concerns I have for the future of the country is the public debt, which is $19.6 trillion as of September 30, 2016. Donald Trump rarely touches on issues of practical consideration, and I don’t know of any well-defined ideas he has for addressing the public debt. His political naiveté and perceived lack of genuine curiosity is a concern regarding this issue, and many others.

Using debt to fund the government usually doesn’t cause problems when the economy is expanding and interest rates are low and involatile. Economic growth also fuels tax receipts (currently about $2.2 trillion), which fuels the ability to service increasing debt, especially in a low interest rate environment.

Market interest rates and the Federal Reserve’s managed Federal Funds target rate, however, have increased recently. A shock to interest rates and/or inflation will greatly increase the government’s borrowing costs. I don’t see any imminent danger on the horizon, but it’s not hard to imagine the problems that debt can cause in adverse conditions.

Real wages and real personal income have steadily increased for over thirty years, but the hard-fought organic growth in GDP and personal income pales in comparison to the growth in the government’s public debt outstanding (see the chart below). (It’s also worth noting that the debt has increased under both Republicans and Democrats.)

Real Personal Income, Real GDP, and Real Public Debt
The graph shows the changes in GDP, personal income, and public debt outstanding over time compared to their respective baseline levels in 1984.

Over the past 15 years, the government has paid for several wars, spent its way out of The Great Recession, and passed into law the heavily subsidized Affordable Care Act (Obamacare). We’re passing the invoices for all that spending on to future generations because most politicians are reticent to advocate for higher tax rates and/or reduced spending, one or both of which are necessary to reduce the debt.

I don’t expect the fiscal health of the government to become a focus in Washington, D.C. any time soon because addressing it requires nuanced discussions and, ultimately, compromise. Rather, the political climate today calls for staunch partisans to exert their will over political opponents in an effort to claim absolute victory. This political climate is counterproductive to getting things done, and until the political climate improves, the public debt will continue to be the elephant in the room that no one wants to talk about—until it’s too late.