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Is America's looming debt crisis causing problems TODAY?

Conservative Review

The final tab for the debt accrued under Obama? $9.3 trillion. On Friday, the Bureau of Economic Analysis (BEA) published the report for fourth quarter GDP growth in 2016, giving us the total growth of the economy on Obama’s watch. The juxtaposition of the two is not pretty. Unless we begin growing the economy faster than the pace of the debt, we will remain in permanent stagnation like most European countries.


The worst economic growth post-WWII

According to the BEA, the economy grew by just 1.6 percent last year, based upon the preliminary estimate of 1.9 percent annualized growth in the fourth quarter. That is the worst annual growth since 2011. To put that into terms relevant to the growth of the debt, this is an utter disaster. The national debt (unchained) grew by 5.57 percent in 2016 while the current-dollar GDP (unchained) grew by just 3.1 percent. The gross federal debt now stands at $19.95 trillion, while the current-dollar GDP is $18.86 trillion, meaning that the debt will outpace the size of the economy indefinitely.

Looking back at the past eight years, the economic stagnation is almost unprecedented, and quite extraordinary when juxtaposed to the growth of the debt. It is simply extraordinary that we have never enjoyed a year of three percent growth (inflation-adjusted ”real” GDP) under Obama. We have now gone 11 consecutive years without a year of three percent growth. Even at the height of the Great Depression we only sustained four consecutive years (1930-1933) without such growth.

Overall, economic growth averaged about 1.7 percent during the eight years of Obama, less than any president post WWII. Since January 2009, the current-dollar GDP (unchained) grew by 31% while the gross federal debt grew by 87%!

Picture your own family budget and envision a scenario in which your debt grows three times as fast as your income and assets. How would that work out?


Debt is not just a symptom, it causes economic stagnation

There is another important point that is lost on our politicians, and unfortunately, on too many voters. The debt is not just a problem for future generations in terms of a fiscal cost that will be born by taxpayers. The exclusive focus on the future is what has fostered the Louis XV mentality of “after me, the deluge.” Let’s face it, we are a nation that doesn’t care about the future of our children. What is missing from the discussion is thatthe debt is permanently weighing down economic growth, job expansion, and wages now.

It's not just that lethargic growth accentuates the magnitude of the debt confronting us. The debt in itself is contributing to the lethargic growth. It’s no coincidence that we have never experienced a single year of 5 percent growth since Reagan, whereas every other president post-WWII had at least one such year under his watch. The accelerating debt is to the economy what cement boots are to a jogger. The national debt is not just a number on a spreadsheet. It represents all of the wasted resources going towards growth of dependency and disincentivizing productivity instead of private investments and economic growth. The misallocation of resources invariably deflates the growth of private investment indefinitely.

According to CBO, not only will GDP growth remain at a dismal two percent for the next 30 years, real GNP per person, which is a good measure of individual income, will grow by just 1.3 percent over the same period. Hence, you are already paying for the crushing debt — the Democrat campaign finance dependency racket — in the form of reduced income.

And the faster the debt increases, the more interest we will pay, which will accelerate the debt even more and further depress the economy. As CBO observes, “[G]rowth in net interest costs and growth in debt reinforce each other: Rising interest costs push up deficits and debt, and rising debt pushes up interest costs.”

During the Obama years, we all understood that Keynesian economics was voodoo and that you couldn’t spend your way into prosperity.

Thus, the debt is not some bogyman in the future. We have already reached the tipping point when it is permanently weighting down the economy. In conjunction, with over-taxation and regulation, the economy is permanently anemic. Historically, we recover from an economic downturn with an even greater period of prosperity commensurate with the severity of the preceding downturn. Not so this time. There were a few decent quarters following the Great Recession, but most were extremely anemic and there were an unprecedented three quarters of contraction (Q1 of 2011, Q1 of 2014, and Q1 of 2015) during what should have been a period of prosperity.


What this means for Trump

Some of you might be thinking, ok, well Trump and Republicans will fix the economy with a better tax and regulatory climate. It would certainly help if we are able to enact real pro-growth tax and regulatory reform, but we cannot ignore the debt.

Thus, when Republicans speak of retaining all of the health care spending and much of Obamacare, which represents one-sixth of the economy, they are not merely raising the price of health care and increasing the debt, they are hurting their chances at growing the economy in the here and now. When Republicans talk about another trillion-dollar infrastructure project without actually downsizing government and imposing free market reforms of welfare and entitlements, they are going to incur more debt, drive up interest payments and misallocation of resources, thereby hurting the economy now.

During the Obama years, we all understood that Keynesian economics was voodoo and that you couldn’t spend your way into prosperity. Now we can see that, in fact, those policies forestall economic growth. Hopefully, that lesson won’t be lost just because we have a Republican in the White House.

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