This week on Facing the Future we talked with Richard Jackson, President and Founder of the Global Aging Institute, and the author of a timely new paper titled, Why the National Debt Still Matters. Concord Coalition chief economist Steve Robinson, who contributed a debt model used in the paper, joined the conversation.
The paper is part of a quarterly series of issue briefs produced by the Global Aging Institute and The Concord Coalition called The Shape of Things to Come. It explains why it’s wishful thinking to believe that our nation can continue to run up the national debt without placing its future at risk and why current budget projections may greatly understate the future debt burden, and hence the dangers of failing to change course soon and decisively.
The Congressional Budget Office (CBO) projects a budget deficit of $3 trillion (13.4 percent of GDP) this year, the second largest since 1945 and exceeded only by last year’s deficit. Debt held by the public stands at just over 100 percent of the economy and is projected to reach its highest level on record within the next 10 years. The picture only gets worse as you look out over the next 30 years with debt topping 200 percent of the economy by 2051. And yet, many political leaders, as well as some prominent mainstream economists, seem strangely unconcerned.
Jackson does not share that complacency, nor does The Concord Coalition.
“The truth is that we are indeed on a dangerous fiscal trajectory,” Jackson said, ”and this notion that we can borrow without limit is a risky gamble that rests on a couple of very questionable propositions.”
According to Jackson, one such proposition “is that today’s ultra-low interest rates will remain ultra-low at least over the next decade.” Another is that “foreigners will continue to have an insatiable appetite for buying U.S. debt.” A third is that “if the growing debt does become economically threatening, we can always rein-in deficits by raising taxes or cutting spending and we shouldn’t worry about that now because the future is uncertain.”
“A lot of this thinking is very seductive but also very dangerous,” he said.
Jackson explained that CBO debt projections might understate the problem because they assume that current law will not change. This assumes that tax cuts scheduled to expire will actually do so even though Congress routinely extends such “sunsets.” It also assumes that annual appropriations will grow no faster than inflation even though “that’s probably not enough to maintain current services, much less to fund new priorities.”
Over the longer-term, Jackson cited an assumed marked slowdown in per capita healthcare costs and population growth assumptions that do not not fully account for recent declines in birth rates as reasons why CBO projections could be optimistic.
Interest rates on government debt represent another substantial risk. Using a model constructed by Concord’s chief economist Steve Robinson, Jackson said that If the ten-year bond yield rises to 4.5 percent over the next three years, not much higher than what the CBO was projecting as recently as 2019, then the federal debt held by the public would reach 125 percent of GDP by 2031, compared with 107 percent in the CBO baseline projection. Meanwhile, net interest costs would already be consuming 29 percent of total federal revenue by 2031, compared with 14 percent in CBO’s projection.
“There is a fiscal cliff looming somewhere out there,” Jackson warned. “We don’t know where it is. It’s out there in the fog somewhere and it’s a fantasy to think that we can speed all the way to the brink and then slam on the breaks at the last moment and impose draconian fiscal austerity.”
Hear the entire interview on Facing the Future. I host the program each week on WKXL, NHTalkRadio.com (N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.