Slow-Boiled By Good Intentions

In case you didn’t know, we surpassed the $20 trillion mark in debt. Like many recent college grads or new homeowners, the United States has piled on more debt than what it brings in every year. In fact, the government debt is larger than the amount of goods and services we produce in a year! In 2016, the Gross Domestic Product, or GDP for the U.S. was around $18 trillion; $2 trillion less than the total debt.

Some people will say, “Eh, whatever. No one is asking the United States to pay up all at once.” Others are distressed, nervous, and full of panic.

Despite the incendiary interstate exit sign photo, this page will stand somewhere in the middle, somewhere…wait for it… reasonable. That is, though we realize that no one is really knocking on the door or holding the United States at gunpoint (though they wish they could), there are several reasons to be concerned.

To be sure, the government debt we’ve accrued has been founded on good intentions. But, as the saying goes, the road to hell is paved with good intentions. The debt and all of our spending, in general, is somehow morally justified and/or is based on some kind of virtuous principle. From protecting us from imminent danger and unemployment to investing in different businesses, all this debt is there for a reason, dammit! But, when debt reaches over 100 percent of GDP (which we’re well passed at this point), it substantially hinders economic growth and the rate at which we continue to increase our productive capacities.

Since the ‘50’s, every decade has experienced a decrease in economic growth. Now, economic growth is directly tied to economic mobility — that is, how easy it is for people to climb up the economic ladder. Thus, there has been a notable decrease in this ability for people to go from being poor to not so poor in this country as economic growth continues to decrease (Chetty 2016; Winship 2017; Katz and Krueger 2017).

The national debt continues to increase and is charted to increase at an even faster pace (especially if interest rates rise) automatically. Every year, the government allocates an increasing amount toward paying the debt’s interest alone! On top of that, the budget increases every year without much opposition.

What’s important is that aside from the small amount of interest the government makes from its various sources of capital, the large majority of its revenue comes from taxing American citizens, including you and me. Whether or not you think the government should spend its money on this or that, the hard truth is that all, rich and poor, will suffer when taxes dramatically increase in the future. Well, only if we don’t implement some serious spending cuts today.

Though Congress often argues over making cuts in arguably productive areas—technology, education, infrastructure—where we really need to cut spending is in the unproductive areas: healthcare and Social Security.

Both of these areas are  funded as a way to protect the people from social ills, but as Hayek mentions, “…while we used to suffer from social evils, we now suffer from the remedies for them.”

However, if the government made some meaningful cuts in these areas, we could actually make headway in reducing the debt burden. Furthermore, the ridiculous spending—$987 billion—on healthcare does not improve health outcomes. We spend way too much on healthcare and get the same health outcomes as most developed countries.

 

healthoutcomevsspending
Click ME For A Cool Graph That Vaguely Shows This

 

Social security—$1.25 trillion—is another bad deal. At the onset of the program, there were around 40 workers per retiree. Today, there are approximately 3 workers for every one retiree. Additionally, life spans have increased dramatically. Social security is consuming the government trust fund, experiencing around a $60 billion annual shortfall. There are arguably much better ways to save for retirement in the private sector today, i.e. Roth IRA, 401(k), matching programs, etc.

 

gapminder graph
Click Here To See This Cool Graph!

 

These programs say they will achieve better social ends, such as health and wealth, but there are other ways to achieve this goal without the entire country going bankrupt.  If we want better health outcomes, we need higher incomes. If we want to save for retirement, we need higher incomes. Plain and simple. How do we achieve higher incomes across the nation? Economic growth. When economists say that economic growth declined by even just 1 percent, this can amount to over trillions of dollars of lost productive dollars in as little as 10 years. That’s a lotta dollars.

It’s hard to see the costs when the benefits of government spending are constantly spouted by politicians and the media. The costs continue to get pushed onto future generations. Also, costs, in general, are hard to measure. There are virtually infinite ways of spending money, and these alternative uses are all costs—i.e. opportunity costs.

The rapid accrual of debt and the slowing of economic growth is the real-life version of the boiling frog. Guess who’s the frog? The more we just let the debt clock tick, the closer we are to being served on a dish to whoever becomes the next global economic powerhouse.

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