Editor's Note: This column is co-authored by Dr. Timothy G. Nash, Kate Hessling, Dr. Tom Rastin, and George Lang.
As we begin 2024, there are many reasons to celebrate being Americans. We live in the freest, safest, most resource rich and prosperous nation in the world. By many economic measurements, such as a record-high S&P 500 and a 3.7% unemployment rate we are the envy of the world.
However, all is not rosy for America. The staggering size, scope and growth of the U.S. national debt must be addressed in 2024.
High levels of debt can ruin families, be the downfall of businesses large and small, and contrary to many political beliefs its burden can collapse governments.
Excessive government spending and record-high deficits during pre-Hitler Germany’s Weimar Republic led to high taxes and eventually massive printing of the currency, hyper-inflation, and the collapse of the country’s economy, one of the largest and most prosperous in the world. The economic shamble that followed led to a wise and peaceful populace electing a tyrant like Adolf Hitler to power. Similar situations have happened with leading countries throughout history, including the fall of the Great Roman Empire in 476 A.D.
We worry that a similar situation is building today in the United States.
The reason for concern
According to the U.S. Treasury Department, our national debt is now just over $34 trillion, a per capita debt of $101,225 — or a debt per taxpayer of $264,090.
What is most alarming is the United States took 205 years from 1776 to record a total national debt of $1 trillion and an additional 29 years to grow the national debt to just over $13 trillion in 2010. Recently, in less than 14 years, our national debt grew from $13 trillion to $34 trillion — with three quarters of the current fiscal year yet to be recorded!
The U.S. national debt peaked at 119% of U.S. GDP at the end of World War II. It declined to just under 54% of GDP by 1960 and 34.48% of GDP in 1980. It currently stands at a modern record of 122.28% of GDP. Today we are paying more than $722 billion in interest payments on treasury bonds and treasury bills to finance our massive deficit. Interest on the national debt is now the fourth largest item in the federal budget, trailing Medicare/Medicaid programs, Social Security, and our national defense.
Why it’s time to worry
Prior to the recent spike in inflation, for more than a decade we were fortunate to finance the national debt at blended interest rates of less than 2%; the direct result of historically low inflation. As of October 2023, the new blended average interest rate is 3.05%, and likely to go higher. By the end of our current fiscal year, we predict Americans will have paid annually more than $1.19 trillion in interest on the national debt; roughly double the interest burden of fiscal year 2021-22. If our prediction comes true, interest on the national debt will be the third largest item in the federal budget.
This fiscal insanity must stop! Government spending must be controlled while higher taxes on the wealthy are not the answer. As the Tax Foundation recently noted, the top 1% of income earners in America paid 42% of all income taxes generated in the United States. Higher taxes will only cause the wealthy to work less or for corporations to take business to countries with lower taxes.
Lower taxes and sensible regulations will grow the economy and increase government tax revenue. A simple examination of the fastest-growing U.S. states or countries bear this fact out. In addition, most families balance their budgets on a yearly basis as do 49 of the 50 states which are required by law. Perhaps it is time to hold the federal government to similar constraints. Certainly, the last 13 years of fiscal irresponsibility compels us to at least consider a balanced budget amendment for the federal government.
The hallmark of America’s free-market prosperity
America has always been one of the freest economies in the world, driven by moral character, the rule of law and a system of meritocracy where success was achieved by satisfying the customer. America has been a beacon for entrepreneurs — risk takers who have made America the world’s leader in invention and innovation of new ideas, products, and services, and created a level of prosperity yet to be equaled anywhere in the history of the world.
Simply stated, we have always been a free country with the ability to reinvent itself to become better (morally and economically). If one looks at the last 100 years, it is a story of reinvention in high gear. We still are (but barely) the world’s lone superpower and have transitioned to services while leading the world’s movement toward artificial intelligence.
Today, manufacturing does not make up anywhere near as much of U.S. GDP as it did in the 1950s or ‘60s. Rather, we produce higher-skilled workers and new technology that have produced larger segments of our economy. In fact, America is home to the world’s Magnificent Seven companies (Apple, Microsoft, Google/Alphabet, Amazon.com, Nvidia, Meta Platforms, and Tesla).
In addition, from an energy perspective, during the last 20 years, America has perfected the process of hydraulic fracturing. Today, we are the world’s largest producer of oil and natural gas (the cleanest in the world) along with the cleanest coal.
Despite these advantages, we worry that the size, scope, and growth in government and deficit spending coming out of Washington will lead to economic conditions like those faced by the Weimar Republic of Germany and the Roman Empire. As an example, in the book, The Commanding Heights, authors Daniel Yergin and Joseph Stanislaw note the budget deficit of President George H. W. Bush peaked in 1992 at a record high $290 billion. Adjusted for inflation, the Bush budget deficit equivalent in fiscal 2022-23 would be just under $635 billion. Compared to the actual U.S. budget deficit in fiscal year 2022-23 of $1.7 trillion, almost three times what Bush’s deficit would have been in 2022-23. Bush’s deficit helped fuel highly respected American foreign policy which led to the collapse of the old Soviet Union by the early 1990’s.
Ask yourself:
Do we have a hallmark we are working on today of the scope and gravity of the early 1990’s?
Can we handle another pandemic with our excessive government debt? Can we protect our borders, the NATO Alliance, and assist countries such as Ukraine, Taiwan, Japan, and South Korea if our deficit continues to grow and the value of our currency comes into question? What happens if the dollar ceases to have the confidence of the major world economies and is no longer the world’s reserve currency? What would the consequences be of another reduction in the U.S. government’s credit rating?
Just like a family whose household budget has gotten out of control, what happens when revenues decline, costs stay the same or grow, debts begin to mount, and no one wants to loan you money because they feel you are a bad risk? It happens to individuals, to businesses, and to governments.
A decade ago, whoever thought a city as large as Detroit would have gone bankrupt?
Dr. Timothy G. Nash is director of the McNair Center at Northwood University, Kate Hessling is executive director of communications at Northwood University, Dr. Tom Rastin is a retired business executive from Ohio and Mr. George Lang is a business owner and State Senator in Ohio.