You have probably seen the big number; that 9 followed by 12 other numbers, ticking upward like the screen on a fuel pump as the owner of the yellow Hummer waits patiently for the "click". They have digital billboards, newsletters, websites, and even java applets for bloggers to include in their posts (I didn't feel the need to, if you just have to see, try the national debt clock).
But what does it mean to you and me?
Why should you care?
Why the heck should you keep reading?
The sky isn't falling and we are not going to die.....yet. Even though it's hard to get even a smidget of positive news on any topic from the media, especially during an election cycle, some of their coverage on the national debt and rising entitlement costs may be warranted. (I won't even go into the financial and political implications of a fear spreading media; in the mood for some political satire anyway? you just have to see this animation from JibJab, it's hilarious.)
My challenge is to strip out some of the hootenanny, boil it down a little, and share my opinion. It is also my hope that you come to your own conclusion about what it all means; So the next time the media says we are all going to hell in a hand basket you can reply, "NO, it's not a hand basket, it's more like a balloon gondola" or conversely, you will never hear that message because you have turned off the TV, gotten off the couch, and are doing something productive.
Where did it all begin?
The beginning is always a good place to start; as a matter of fact we can't start any earlier as the first expenditures that gave birth to the national debt occurred while we were fighting to become a nation. In 1791 around $75 million in debt assumed by the colonies fighting the Revolutionary War was transferred to the Federal Government. So it begins.
Hey, crap happens and sometimes you need to go into debt to clean it up.
Yeah, this is a valid point; Just like when your basement floods or you find out your house is filling with radon, the cleanup could be expensive and unless you have massive cash reserves, debt may be required. Wars are not cheap, but they have and will always be necessary to protect and foster freedom and defend our interests, it's just the way it is.
So, the national debt is mainly due to war time spending?
Well......initially. The most significant historical increases to the national debt have been due to war time conflicts. The Civil War was the first period of dramatic debt growth, leveling out until World War I and further increasing by an order of magnitude during our buildup and involvement in World War II. The debt proceeded to match inflation until around 1980 when it began to skyrocket.
The word "skyrocketing" scares me when it refers to debt. Should I be afraid?
My answer...a little. If you heard that Bill Gates took out a loan for $10 million dollars you would probably say "that's OK, he can afford it." If the average person working at a local diner owed that much, you would want to lock them in a padded room and take away their shoe laces.
Take a look at this chart below. You will see in the top graph that the total amount of debt has dramatically increased since the 1980's, however as illustrated by the bottom graph, the debt as a percentage of GDP shows a much slower growth rate and even a small decline during the tech boom. Basically we have grown, along with our income, and you could argue so has our capacity to shoulder a larger dollar amount of debt.
I don't have anything to worry about, is that what you are saying?
No, it's still a problem, and it's getting bigger. Right now about 18% of all federal taxes collected goes to pay interest on that debt which is mainly sold in the form of treasury securities. I won't go into great detail about whom or which countries own a majority of these securities, but they continue to buy them because the United States is still the safest investment in existence, never having defaulted on any issued debt.
I am following you here, but wouldn't it be nice if someone put this whole mess into a cartoon and a song?
Yep, School House Rock has us covered...
Yeah, the dinosaur is big but I am just not that afraid of it?
We will grow faster than we overspend right?
Hmmm....I'd like to now write about the scariest idea I feel has ever been thought up by those in political power. Entitlements beyond the original Bill of Rights. Since President Franklin D. Roosevelt's creation of the Social Security Act taking effect in 1937, and his proposal of a second Bill of Rights guaranteeing the following:
- A job with a living wage
- Freedom from unfair competition and monopolies
- Home ownership
- Medical care
- Education
- Recreation
the government has now taken a much larger role in the individual social and financial lives of each and every citizen, and boy is that expensive (implicit unfunded promises of social welfare: Social Security, Medicare, Medicaid etc, if included raise the current debt from $9.5 trillion to about $59.1 trillion). Even if we put cost aside, something that has become much more dangerous is over time we have now absorbed an entitlement mentality, expecting government intervention in our personal lives. We sometimes forget that we control our own lives and now quickly blame the government for our problems or run to the government for help. This new way of thinking severely hampers not only our ability to make decisions for ourselves, but also skews our ability to elect those who may do the best for the country and not our own wallets.
Helping people is good.
Why don't you like social programs?
Some things just aren't fair and people need a little help sometimes.
I do believe in helping people, and if someone is in a position to lend a hand, whether financially or through other charitable means, I strongly believe they should. I just am apprehensive about the role government should play. When I reduce all this in my head I come to one question that can be applied to all this entitlement stuff, each of us will have a different answer: Who can most likely make better decisions for me and my family in the important areas of retirement, health care, etc. me (also the free market) or the government? (Don't answer it, just think about it)
You said you wouldn't get political, what do you call that?
Sorry...There are arguments on both sides of the isle on the role government should play in our lives. There is good and bad in each.
What does this all mean? What's your summary/opinion?
What started as debt required to fight expensive wars has steadily increased by almost non-stop deficit spending and BALLOONED due to unfunded government promises of social entitlements. Our increase in economic power has helped shoulder much of the debt keeping it decently under control as a percentage of GDP, however...expensive social programs both on the books and proposed threaten to increase the debt faster than ever before.
Where do I come in again?
An increasing amount of the money you pay in taxes goes to pay for the interest on this debt (currently about 18%) and not to pay for roads, schools, and military hardware. Unless changes are made (and that's extremely hard with our new entitlement mentality) more of your money must be harvested through taxes to pay for it all, either now or in the future.
I am mad at the government for getting into this much debt.
While it's OK to be a little grumpy about it, don't forget we have faced some massive challenges in our short history as a nation and prevailed. The amount of opportunity today in the United States is absolutely amazing, never have any people been this fortunate in the history of human civilization. It is time however, that we get realistic and even though the problem is not immediate, fix it while it's easier ahead of time.
What can I do?
We all have a say in the direction and leadership of this country, little by little a general shift in our mentality away from a "what can you do for me? I don't care how much it costs" mentality to one of more financial constraint is possible. We also have the ability to improve and develop our own lives in such a way that even when we hit a bump in the road, our own resources can see us through to better times. Less reliance on the government and more on ourselves. Take charge of your own life.
I'm in the mood for a game, find any?
Why yes I did. You think you are so smart and can do better? Here just go ahead and try to balance the budget : )
Play Budget Hero
Where can I learn more?
Take a look at this great video from the Government Accountability Office by former Comptroller General David Walker. The GAO in 2006 speaks out against the rising debt level of the United States.
Part I
Part II
Want to learn more about what you can do?
4 Actions You Can Take to Fix the National Debt
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