January 10 2012
Nicole Kurokawa Neily
The United States economy has a new dubious distinction: our country now owes more than we produce in a year.
From the Daily Mail:
The amount owed by the federal government to its creditors, combined with IOUs to government retirement and other schemes, now stands at $15.23 trillion.
The government estimated the value of goods and services produced by the economy in a year at $15.17 trillion as of September. …
According to long-term forecasts, debt will carry on growing faster than the economy, which would need to expand by at least 6 per year to keep pace.
President Obama's 2012 budget shows the debt passing $26 trillion ten years from now.
With this milestone, the U.S. joins a small group of nations whose debt exceeds their GDP: Europe’s PIIG nations (Portugal, Italy, Ireland, and Greece) as well as Iceland and Japan. What… illustrious company.
As Rep. Jim Jordan, chairman of the Republican Study Committee, soberly assessed, “Having a national debt larger than our economy basically means two things. The debt is too big, and our economy is too small.”
With GDP growth slightly less than 2 percent, we’re a long way from where we need to be on that front. Certainly, there are steps we can take to inch things upward – such as trimming regulations and lowering tax rates to encourage entrepreneurship and innovation – but it’s important to remember that it’s virtually impossible to solely rely on growth to get us out of the hole we’re in. Most economies with GDP growth of 6 percent or above are developing nations who are starting from a much lower base and are beginning to industrialize (think China, India, and Indonesia over the past few years.)
Accordingly, we need to tackle the spending side. Seriously.
“But wait!” you might say. “Didn’t Congress cut a bunch of money last year?”
Actually, no. Those cuts that everyone anguished over will only slow the RATE of ever increasing spending, starting from an inflated base. If things actually play out as they’re supposed to – and that’s a big “if” – the debt will hit $24 trillion in ten years, instead of $26 trillion. Big whoop.
As the Cato Institute’s Chris Edwards notes, “There are only two types of cuts that are ‘real’: legislated reductions in entitlements and complete terminations of discretionary programs. Once enacted, those types of cuts have the best chance of shrinking the government permanently.”
It’s shameful that our country’s once-proud economy has fallen into such a sorry state. But it’s even worse that our politicians refuse to do anything to remedy the situation.