With the Administration and Congress once again at odds over
raising our nation’s debt ceiling I keep wondering why no one in Washington
seems to understand why doing so only makes the problem worse. I understand that we can’t just suddenly stop
doing everything that we’re doing.
Calling an abrupt halt to projects that are already in progress would do
great damage to the economy. I
understand that. But Congress isn’t just
continuing projects they’ve already started; they are creating new ones and
expanding others so that our debt problem gets worse instead of better.
Whenever anyone suggests making cuts to existing spending,
particularly to welfare, Medicaid, Medicare or Social Security, there is an
outcry because it is easy to see how people will be hurt when cuts are made to
these programs. A similar claim is made
whenever cuts are suggested to our spending on national defense. No matter what cuts are suggested, we are
told that those cuts will cause someone pain.
The problem with pain, as it relates to our spending, is
that it is very much like that oil change commercial. A little pain now will almost certainly save
us from much greater pain later.
Why? Because right now our nation
spends about $3.5 trillion per year but takes in only $2.5 trillion in
taxes. Obviously, you can’t, in the
long-term, spend more than you earn, everyone who has ever balanced a checkbook
knows that, but Washington has been doing it (more or less continuously) for
more than sixty years. So far we’ve
accumulated a national debt of $17 trillion dollars… and, as bad as that
sounds, that’s the good news.
We hear that our national debt is $17 trillion dollars but
we are not told that this does not include the money that we “borrowed” from
Social Security and Medicaid. Every one
of us has paid into Social Security for our retirement. While all of the Baby Boomers were working,
the surpluses from these deposits were immense… but they were never saved in
any kind of “savings account” or “lockbox.”
Instead, to cover the growing deficits our elected representatives…
spent them. Because we borrowed the
money from ourselves, this spending isn’t really considered part of the
national debt, but when the Baby Boomers retire they will, naturally, expect to
collect from the system they paid into.
How much do we owe them? At
present, our borrowing from Social Security and Medicare amounts to an
additional $85
to 95 trillion and our expected payments for the national prescription drug
benefit add another $20 trillion. All
together that comes to an astounding $125
trillion in debt. (That works out to
over a million dollars in debt for every U.S. household!)
Here is where things get ugly. If we assume that over the next forty years,
everyone who is currently working will retire, then we will have to repay most,
if not all, of that debt over that same forty year period. I know the math is more complicated than
that, but this oversimplification will get us close enough to see the
problem. If we think of this as paying
down a mortgage, we have forty years to pay back $125 trillion in debt with an
annual “income” of $3 trillion.
Do you see the problem?
In order to repay $125 trillion in 40 years, our annual
payments will exceed our current income.
If we start right now, and we could somehow stretch those
payments out for a hundred years, we would still have to repay $1.25 trillion
per year. That would seem reasonable, but
if we first balance the budget (so as to stop borrowing even more money while
we were paying off our debt), we would still have to cut our current spending
by fifty percent!
Worse, none of this is theoretical. This is money that we have already spent and which must be repaid. Because we borrowed most of it from
retirement plan, failing to pay it back will mean that Social Security checks
don’t go out and retirees’ medical bills don’t get paid. We complain that making small cuts causes
pain, but how much pain will there be if we default and those checks don’t go
out at all?
As the man said in the commercial, “You can pay me now, or
you can pay me later.”
Either way, there will be pain. The longer we put it off, the worse it will
be.
Our only choice is whether we want to experience pain now or worse
pain later.
Detail:
Pain: Now or Later?
