In today’s Public Discourse, Acton’s director of research, Samuel Gregg, discusses the enormous debt crisis the U.S. and many nations currently face. While debt crises are hardly new, Gregg states, America’s current debt situation is frightening.
America’s public debt amounts to approximately 105 percent of GDP. Since 20 January 2009, America’s total outstanding public debt has grown from $10.626 trillion to $18.152 trillion as of May 8 this year. Such an increase reflects a consistent disparity between government revenues and expenditures that has long plagued America’s public finances.
What’s driving this debt? Gregg’s response: the welfare state.
In 2013, 49 percent of federal government expenditures was on major entitlements such as Social Security and Medicare, with another 20 percent on income security and other benefits. Just 18 percent was on national defense. One study projects that 85 percent of increases in federal expenditures over the next ten years will be on entitlement programs and public-debt interest payments. If anything, Western European nations face even more ominous challenges in this area, given their bleak demographic outlooks.
While casual readers of Laudato Si’ may not notice, Pope Francis makes clear that foreign debt has a way on controlling poor countries, (50) making them even more vulnerable financially.
By allowing debt to grow to its current state, Gregg says we are now left with unpalatable choices. One option is for countries to default; it’s been done before. Of course, this means that these countries will have limited access to future loans.
Another choice is currency devaluation.
It also, however, involves (1) a risk of increased inflation and (2) accepting that everyone with holdings in that currency will suddenly find the value of their assets reduced. The financially literate can often cope with and even profit from such changes. The less financially educated probably won’t. Is that just?
Some nations try to restructure loans, which often leads to tax increases for citizens. Clearly, none of these choices are an easy sell from a political point of view. Gregg, however, says it is citizens who must force governments’ hands:
All of this analysis points to an unpalatable political fact. Unless enough citizens in a democracy are willing to support the difficult choices that enable nations to bring public debt under control, the chances that legislators and governments will do so is small.
Read Gregg’s “Public Debt, Political Paralysis, and the West” here.