If President-elect Donald Trump wants to make America great again, he needs to find a way to reduce the federal debt. Samuel Gregg, in a new article at the Stream, explains why this is so important. There’s much at stake if no action is taken to reduce the federal debt:
On December 30, 2016, the United States’ official public debt was $19.97 trillion. It’s almost doubled since 2008. It also exceeds the size of America’s economy in nominal GDP in 2016 ($18.56 trillion).
Put another way, America’s public debt is approximately 107% of nominal GDP. To make matters worse, these numbers don’t include state and local government debt or the unfunded liabilities of entitlement programs like Social Security.
The reasons for this rise in public debt aren’t hard to grasp. At its most basic level, it reflects a failure of Congress and the Executive Branch to match spending and revenue since 2000. The gap has narrowed over the past 5 years. Nonetheless, spending continues to exceed revenue. In terms of what’s driving federal expenditures, it is social programs such as healthcare, income security, education, and housing. Spending on activities such as national defense has remained static.
So why should we care? What’s another trillion here or there?
Americans should worry because there’s plenty of evidence that this level of public debt can have grave effects on economic growth.
Once a country’s debt/GDP ratio reaches a particular threshold, one consequence appears to be slower economic growth. Economists argue about the exact threshold at which debt starts to impact growth. Some cite the figure of 85% of GDP. Others say 90%. Economists also debate how fast high debt negatively impacts growth. Yet there’s considerable consensus that, at some point, high debt-to-GDP ratios do have this impact.