Commentary
The headline item from the Nov. 3 elections is that Democrats wiped out Republicans in the House and the Senate. Congratulations. But do our newly minted senators, with their terms ending in January 2033, realize that they will be the cohort of legislators who face the exhaustion of Social Security’s retirement trust fund in 2032?
Each official will choose from letting a 22 percent automatic cut to benefits go through, finally making the program’s math work by reforming its outdated design, and letting Washington borrow trillions of dollars more to prevent any cuts. Few, if any, of the candidates said a substantive word about it while campaigning.
In fact, fiscal sustainability was remarkably absent all election season. During the 2010s, powerful politicians openly championed “austerity.” As late as 2018, according to AdImpact data reported by The Wall Street Journal, 140 political ads mentioned the debt or budget deficit. During this cycle, only 30 did, putting the subject 52nd among campaign topics.
That’s beyond crazy. It has been widely reported that in the fiscal year that just ended, government debt held by the public reached 100 percent of gross domestic product (GDP), a level last seen following World War II. The deficit is nearly $2 trillion, or 6.2 percent of GDP. Interest payments have more than doubled in only four years, surpassing the United States’ bill for military spending.
And because the Treasury kept the debt’s average maturity short, high interest rates are hitting the budget very quickly. About one-third of the marketable debt—more than $10 trillion—must be refinanced in the next 12 months. This debt must be rolled over at the new rate, so interest payments will continue to explode.
Indeed, some of that debt was initially borrowed at much lower rates. The 30-year Treasury yield is near 5.31 percent. The Iran war explains part of that, but investors also question a government and Congress with no plan to back the debt with future surpluses. So they’re charging more while they wait for answers.
This is the situation many of us warned about 15 years ago. At the time, we all got the same pat on the head. Politicians who ran on fiscal issues were mostly pacified. After all, interest rates were historically low, and markets were buying all the debt that Uncle Sam was putting out there.
With some economists, such as Olivier Blanchard and Jason Furman, making the intellectual case that the debt had no real cost as long as interest rates stayed below growth rates—and with many of the same people believing that this would be the case indefinitely and that inflation had been defeated—politicians were more than happy to spend away and borrow to pay for it.
However, what we fiscal hawks warned about wasn’t the short-term risk of borrowing at such low rates. We warned about what came next. Low rates were never a law of nature. When they drifted back toward normal, the country got higher rates applied to a now much larger debt.
Public debt was roughly $10 trillion in 2011 (65.5 percent of GDP). It stands now at $32.6 trillion (100 percent of GDP).
So here we are. In a world where politicians almost always blame the other guy, nobody gets a pass.
Voters don’t get a pass either. Polls say Americans worry about the debt, yet few accept the necessary spending restraint. Many had other things on their minds this fall, to be sure. But interest costs and trust-fund expirations won’t care who won on Nov. 3.
Of course, many of the new legislators will think raising taxes is the way to go. However, it’s really hard to solve this problem on the revenue side. Revenue collection has hovered around 17 percent of GDP for the past half-century (including when income-tax rates were much higher than they are today). Meanwhile, spending has climbed from about 18 percent of GDP in the 1960s to more than 23 percent, with this growth concentrated in programs for the elderly.
Closing the tax code’s carveouts to special interests would help, but there is no path to sustainability that avoids cutting (or slowing the growth of) benefits, raising eligibility ages to reflect longer lives, and putting Medicare on a budget.
The new class of senators must now deal with reality. I wish more voters had asked them how they’ll do it.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
