Apparently, our government believes the solution to the problem of being incredibly deep in debt is to go even deeper into debt.
For quite some time, there has been a statutory limit on the amount the U.S. government can borrow to pay its bills. Time and again that debt ceiling has been raised each time it was reached. Until the other day, that limit was $31.4 trillion. Just a few days before that limit was reached, the President and Congress reached an agreement to suspend the limit.
According to the government and the media, a failure to raise or suspend the debt ceiling would have had catastrophic effects for the U.S. economy. Undiscussed, however, are the consequences of forever going deeper and deeper into debt.
READ MORE — Howard Lurie: Despite today’s buzzwords, ideology cannot trump biology
Apparently, being only $31.4 trillion in debt isn’t enough. Not only is the government unable to pay down any of what it presently owes, but it can’t even pay its current bills unless it borrows more. Thus, the government has suspended the current debt ceiling so it can go even deeper into debt. There will now be no limit on how deeply into debt the government can go.
Part of the problem, I submit, is that the numbers have become so huge we cannot really comprehend them. A trillion is a one followed by twelve zeros. That is a number that is beyond our ability to grasp. Ordinary people do not deal with numbers that big. It is, therefore, difficult for us to visualize and appreciate their significance. They become unreal and virtually meaningless.
Nevertheless, I will attempt to illustrate our national debt in a way that may enable you to grasp its enormity and its significance and implications.
According to government figures, the median household income is slightly more than $70,000. That means one half of the nation’s households have an income of less than $200 per day. Of course, that also means one half of the nation’s households have an income of more than $200 per day. Some have an income that is a lot more than $200 per day, so let’s take a household of two that has an income of $1,000 per day. That is five times the median household income. That couple could go out to dinner every evening at a decent restaurant, order a cocktail for $10 each, an entrée for $50 each, and a dessert for $10 each. That comes to $140. They leave a generous $30 tip, and are still under $200. They still have $800 of their $1,000 income left.
At a $1,000 per day, that household’s annual income is $365,000. At that rate, it will take that couple almost three years to acquire $1 million.
Now imagine a household with an income of $1 million a day. That is five thousand times the current median household income. In a year, they will bring in $365 million. It will take them almost three years to acquire $1 billion.
We must ask ourselves, if there is no longer any legal limit to the amount the government can borrow, is there any practical limit to the amount of debt the government can incur?
Let’s now imagine that our government is serious about reducing the national debt and therefore decides to reduce the debt by $1 billion a day. That is five million times the current median household income. In a year, it will have reduced the debt by a whopping $365 billion. In almost three years, it will have reduced the debt by $1 trillion. With a national debt of over $31 trillion, it will take more than sixty years to pay it all off, even at a rate of $1 billion per day.
Currently, the U.S. gross national product (GNP) is less than $24 trillion. (The GNP is an estimate of the total value of all of the goods and services produced by the nation’s residents for a year.). Thus, the US government owes more than the nation’s residents produce in a year.
We must ask ourselves, if there is no longer any legal limit to the amount the government can borrow, is there any practical limit to the amount of debt the government can incur? Is the government, in effect, in possession of a credit card that can never get maxed out? Won’t the interest on the national debt eventually exceed the total amount of taxes the government collects? Can it then borrow even more just to pay the interest it owes on the amount it has borrowed? Surely, there is a limit.
With half the nation’s households earning just slightly more than $70,000 a year, the government cannot tax its way out of debt without reducing government spending. But with politicians buying re-election votes with government funds, it will be difficult to reduce government spending.
A likely consequence is uncontrollable inflation. It is time to think seriously about the solution. Surely, the solution to being hopelessly in debt is not to go even deeper.
Howard Lurie is Emeritus Professor of Law, Charles Widger School of Law, Villanova University.