The Tao of George Best.

The great—and highly-paid–soccer-player George Best explained his post-career bankruptcy: “I spent a lot of money on booze, birds and fast cars. The rest I just squandered.” 

The final years to the 1990s were good years for American public finance: four consecutive annual budget surpluses and a total debt of about $5.7 trillion.  Over the course of the next two decades, the debt rose above the $25 trillion mark.  The Congressional Budget Office (CBO) projects that the debt will rise by more than $20 trillion in the next decade.  The longer-run projections show things getting much worse.[1] 

One of the drivers in debt expansion in the first decades of this century came in low interest rates.  Keeping rates low formed a response to repeated major economic problems.  It also meant that the interest that the government has to pay to much of the debt is cheap.  That policy came to an end when the Federal Reserve Bank began raising interest rates to fight inflation.  The smart money once expected low interest rates to go on forever; now the smart money seems to think that high interest rates are here to stay for the foreseeable future. 

More troubling is the change in the ability of the United States to pay the debt, which consists of both principal and interest).  During the expansion so far, from c. 2000 to c. 2020, the ratio of debt to Gross Domestic Product (GDP) tripled to 98 percent.  Over the next decade that ratio is projected to rise to 118 percent.  That is, the debt will expand at a faster rate than will the economy.  “The longer-term projections show a near-complete loss of control over fiscal policy [i.e. taxing and spending choices].” 

Americans and foreigners will go on buying American government debt (Treasury bonds, IOUs) so long as they think that they will get paid back.  If people start to think that they will not get paid back, then they will become reluctant to buy debt.  The price offered by the government will have to rise.  Other forms of spending will have to be sacrificed to stave off even the shadow of bankruptcy. 

The obvious solution is to stop the problem from getting worse immediately while we figure out a long-run solution.  That would suggest both tax increases and spending cuts. 

The Republican Party has made a fetish out of tax cuts.  It turns out that Democrats aren’t willing to roll-back most of those tax cuts when they get in office.  Democrats have built their “brand” on new and expanded-old government programs to address social problems.  In many cases, the benefits promised by the exponents of both sides have failed to materialize.  Reversing course is going to be painful—if it happens.  Democracy has been pretty good at distributing benefits.  It has seldom been good at distributing sacrifice.[2]  The Constitution may not be a “suicide pact,” but our current politics may well be such a pact. 

Obviously, the debt resembles climate change.  They are “primary” problems without painless solutions.  Transgender athletes, Donald Trump, and even guns are “secondary” issues. 

The questions are:

  1. Can we focus on the essentials? 
  2. Can we solve these problems without breaking democracy itself? 

[1] William Galston, “Ballooning National Debt Is a Rotten Legacy,” WSJ, 12 April 2023.  On Galston, see: William Galston – Wikipedia  It’s not like he is some kind of no-account. 

[2] The experiences of Britain and the United States during the Second World War are notable exceptions.