What a difference a strengthening economy makes. To casual observers, the future seems rosy and old financial worries seem silly and irrelevant.
In his recent State of the Union address, President Obama kept the forecast tight and bright as he promised “a breakthrough year for America.” The budget deficit, he said with pride, has been cut by more than half.
He made no mention of the growing federal debt. The omission seemed to say debt should cease to be a concern.
But what he said in last year’s speech remains true: Unless changes are made, “our retirement programs will crowd out the investments we need for our children and jeopardize the promise of a secure retirement for future generations.”
That reality has been interpreted so many different ways by various economists and politicians that most of us citizens dismiss it as theoretical trouble, safely distant from our lives. Congress reinforces this attitude by continuing to borrow from the future to subsidize the present, long after the recession has ended.
It is easier to understand our household budgets. Everyone knows personal debts are not theoretical. They are real and have weight.
Everyone knows they can’t increase their wealth by lending money to themselves. They know they can’t give their children a better future by bequeathing them debt instead of assets. It’s much the same on the national level.
The federal debt will at some point become as painfully real as a maxed-out credit card. It is a dark cloud in the distance, headed our way. It is affecting expectations and is therefore a drag on today’s economy.
The Heritage Foundation warns that, unless changes are made, “the interest payments alone will be enough to crush future generations.”
That conservative organization says information from the Census and Congressional Budget Office show that by 2023, annual interest payments on the debt will be about $2,400 per person, or more than $6,000 per household.
“This is almost as much as what the median household pays in Social Security taxes each year,” its researchers observe.
Such costs are bound to lower standards of living.
We see no evidence Congress is ready to face this daunting challenge now, while there’s still time to avoid the worst consequences. Lawmakers were justified in raising the debt limit last week to authorize themselves to borrow the money they need each month to fund the spending plan they have already approved.
It would have been irresponsible to risk default — as some extremists want — and throw the economy into chaos. But it also is irresponsible to proceed merrily along without confronting the nation’s underlying fiscal rot.
The White House is correct that the current-year budget deficit looks good in terms of recent years. It is falling at the fastest pace since the demobilization after World War II. The situations, however, are very different.
After the war, a surge of homecoming troops was eager to start families, open businesses and build houses.
And the war had devastated our industrial competition.
Today such rapid growth is unlikely. The children of the World War II generation are retiring and expecting to reap all the federal benefits they have paid for and been promised.
The country cannot keep borrowing money indefinitely to pay these and other bills. The interest owed on the total nation debt will quadruple over the next decade, according to the Congressional Budget Office.
Interest payments this year will be $233 billion. By 2024, these payments will be $880 billion. That’s about like the cost of World War II every decade from then on.
The president could be right about 2014 being a breakthrough year. All is well until we think about 2024.