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A Showdown Over the Federal Budget Deficit
As the United States faces another showdown over our debt ceiling, we at The Puck wanted to share some thoughts on how the Federal government took on over thirty-one trillion dollars in debt.
On January 23, The New York Times’ podcast The Daily had their White House correspondent, Jim Tankersley, on the show. Tankersley explained that over the past twenty years, spanning four Presidents, the Federal government’s debt has grown by over $25 trillion -- $12.7 Trillion under Republican Presidents and $13 Trillion under Democratic Presidents. He noted that, understandably, both parties are reluctant to acknowledge that they have equally contributed to the problem.
To repeat, Americans have incurred over $25 Trillion of a total $31 trillion of debt in just the last twenty years.The question is, why? Or rather, why and how has spending gotten so out of control? I read Jeb Hensarling’s January 18 piece in the Wall Street Journal, entitled “The Government Debt Threat Keeps Mounting .” Hensarling astutely points out that, “Today entitlement spending comprises 64% of the federal budget and continues to grow unsustainably.”
So, let’s talk about U.S. entitlements. Currently our government is controlled by the Boomer generation (or even older, considering there are several octogenarians in government). When problems arise, it should be expected that younger Americans will look to the Boomer generation to accept responsibility for their actions and take a proactive responsibility to do well by future generations.
Unfortunately, that has not quite been the case. For quite some time, we have known Social Security, as currently designed, was unsustainable. The model, where today’s workers pay for today’s retirees assumes a relatively stable population. What happens when birthrates explode, as they did post-WWII? You think 65-or-so years later there may be an issue?
We have, for the last several years, been unwilling to make tough decisions regarding Social Security, Medicare and Medicaid. This is of critical importance. While the current situation was not born of malice, it has been a long time coming. Yet, our government has been unable to proactively curb some of these negative effects, to the point where the current situation has grown unsustainable.
This gridlock is among a number of reasons why the deficit continues to grow. Consider that our current entitlement system is not being administered in a financially balanced manner. If these programs were being run by private companies, they would have all gone bankrupt years ago. The numbers just don’t work.
Continued unwillingness by the Federal Government to take action will only increase polarization, anger, disillusionment in our system as figures like the national debt continue to rise to staggering and historically unprecedented levels. While for a long time conventional financial wisdom has been, borrow your way to prosperity, you cannot saddle a country with this much debt and not have additional consequences.
Is the answer raise taxes? No one wants to pay more taxes. We, as humans, as Americans, do have an entitlement problem – we always want something for nothing. But, as the old adage goes, there is no free lunch.
What about an overhaul of the system where the money paid in needs to match the money paid out? Can we overhaul the mathematical formula so that Social Security looks more like private insurance or even a savings account, where you are, in effect, paying for yourself? What does that look like?
Consider life insurance. We pay a certain amount and some of us live more than the average life span and some below. From an actuarial manner, you can properly price insurance. We should, in theory, be able to do the same thing on a consistent basis with our entitlements.
But that requires sacrifice and a willingness on our part to compromise. Unfortunately, if history is our guide, it will take a crisis to develop the political will to make tough decisions. I hope we at The Puck are incorrect, but we suspect that a financial liquidity crisis will continue to build until these tough decisions are made.