The Roman historian Livy famously described the terminal plight of the late Roman Republic: "Nec vitia nostra nec remedia pati possumus" ("We can bear neither our shortcomings nor the remedies for them"). As I reread this phrase in Christian Meier's biography of Julius Caesar this past weekend, I couldn't help thinking of America's current fiscal profligacy -- which has been growing for years at an ever-accelerating rate.
Of course, since last fall's financial/economic crisis, the rate of profligacy has become supercharged. Like the Roman Republic's lament, we think we can't survive without deficit spending -- but we soon won't be able to survive with deficit spending, either.
In 2012, federal debt will be more than $15 trillion. Annual interest probably will be between $1 trillion and $1.7 trillion -- depending on whether long bonds remain at about 3.5 percent or go to recent historic rates (6 to 7 percent). Deficits will average about $1 trillion a year -- $22 trillion by 2019. Yearly interest payments then will be more than $2 trillion. That's the good news.
That assumes the world will continue to buy our Treasury notes at plausible rates. We had a slight foretaste of the future last week, when 10-year U.S. Treasury bond yields shot up 60 basis points on soft demand and a Standard & Poor's warning of a possible ratings downgrade of British bonds. The bond market may well rebel ultimately against our government's excessive borrowing and spending (insufficiently supported by adequate national economic strength).
The "good news" of only $22 trillion in debt supported by purchasable bonds also assumes that our economy will recover this year and that we then will have continued steady economic growth. Of course, the more the government borrows the less will be available for the private sector (the part of the economy that produces things). And the less available borrowing there is for investment and consumption in the economy the slower the economy will grow -- if it grows at all.
But the not-so-good news on top of this astounding and growing indebtedness is that we will have to borrow even vastly more than the current budgets propose. Starting in 2017 (just eight years from now), the Medicare trust fund will be depleted. We then will begin to experience a Medicare revenue shortfall that ultimately will total between $35 trillion and $40 trillion during the following 60 years. Social Security's depletion will begin 20 years later and will have a shortfall of a little less than $10 trillion during the same period.Oh, and the current budget projects that defense spending will decrease as a percentage of the federal budget. While the overall budget is slated to grow 75 percent during the next decade, defense is to grow just 17 percent. Only imminent and eternal peace would permit such low defense expenditures. The administration's health plans also will add a currently unfunded $1.5 trillion per decade.
Not only does continued, increased government borrowing ever more sap our economy but also, as the baby boomers retire, we will move from the recent statistic of four workers for each retiree to two workers for each retiree. That means a weaker economy, as this smaller work force will not produce enough to support all of government's costs -- even with massive and persistent tax increases. And if, as seems possible, sometime in the next decade the world resists lending our government sufficient money (because our economy will be too small to produce enough to pay the ever-growing interest on the debt), then we finally will be forced to make choices of what to buy and what to forgo. Maybe only subsidized pain pills rather than medical treatment for old people? Only 50 percent payment of Social Security benefits? Default on federal debt payments? Or what the Chinese already are worried about: monetizing the debt, leading to hyperinflation?
Similarly, for the United States today, we are not prepared to forgo what all this soon-to-be-unavailable deficit spending can buy us (health care, bank bailouts, defense spending, food stamps, etc.). Nor can our governments (and the publics who elect them) stop the spending.
In Rome, eventually a contradiction arose between Romans' concern for the tasks that needed to be performed and their concern for their form of government. The contradiction was resolved and the problems solved at the price of their republic: Came Gaius Julius Caesar.
Surely (presumably?), for the next decade, the United States will bungle onward with both our form of government and our deficit spending. But sometime soon after 2017, when Medicare's trust fund will begin to be depleted (or earlier, if the world stops buying our bonds), the shocking reality of being forced to do without borrowing will shape -- and probably misshape -- both our way of life and our form of governance.