When President Barack Obama nearly doubled the national debt, raising it by almost $9 trillion during his two terms in office, Republicans howled in alarm. Although interest rates were being kept artificially low by the U.S. Fed and global central banks in the aftermath of the Great Recession, there would certainly be a reckoning down the road when the bill came due.
So incensed were Americans by the profligate borrowing by the Federal government that there was a political revolt in the form of the tea party. Tea party politicians took Congress by storm and demanded accountability for the fiscal irresponsibility our country had engaged in. Tea party-affiliated politicians called on congressional Republicans to be willing to shut down the government in order to force congressional Democrats and President Obama to agree to deep cuts in spending and to repeal the Affordable Care Act. And for the first time in decades, Congress refused to pass a continuing resolution (in lieu of a final budget deal) to raise the debt ceiling, which forced a government shutdown in 2013.
One of the central tenets of the Republican Party has been a commitment to fiscal conservatism, which consists of three central prongs: low taxes, low debt and small government. America's burgeoning national debt, sprawling government bureaucracy and incredible burden of liabilities seem to belie this set of ethics.
So, when President Donald Trump agreed to lower taxes as part of his economic plan in 2017, most Republicans thought it was a step in the right direction. We believed it was good for the economy, and many signs, including our current state of full employment and robust stock market expansion, seem to bear that out. However, lowering taxes only affects one side of the government balance sheet. In order to be done responsibly, lowering taxes has to be accompanied by lowering spending.
And that is something the president has woefully failed to do. As of 2019, for the first time in American history, the national debt reached 100% of our GDP. Despite the fact that our economy generates an incredible $20 trillion of wealth annually, we borrow at least that amount in addition to our income to finance our current expenditures. Were America a country without a reserve currency like Greece, we would already be facing an economic emergency. We once derided Obama as the king of debt. But at this point in his presidency, Trump seems to have happily inherited and continued the mantle.
The economic reasoning behind Trump's decision to lower taxes without lowering expenditures is a particular form of economic voodoo. It reasons that the "fiscal multiplier" caused by putting more money back into people's pockets will stimulate increased economic investment and consequently economic growth. That economic growth will then produce increased tax revenue that exceeds the amount of the tax cuts themselves. This looks great in theory, and theory is where it belongs, because economic growth has not outpaced government expenditure over the past two years.
Despite campaigning on a promise to eliminate the national debt, Trump is on track to match or exceed Obama's debt increases. The only difference is there's no opposing party in Congress apparently capable of checking the madness. There is no more tea party, and fiscally conservative republicans have been notably silent.
President Trump has not only proven to be fiscally irresponsible like his predecessor, he has also played a dangerous political game of publicly coercing the Federal Reserve to keep interest rates artificially low. The massive fiscal stimulus the Fed has engaged in over the past decade has kept the U.S. economy afloat. But it has also so burdened the Fed's balance sheet that it has very few tools left at its disposal should a real economic crisis occur.
At least Obama could say he needed to stimulate an almost moribund economy in the midst of a deep recession. What's Trump's excuse?
President Trump has had a long enough track record in business to understand both the healthy and perilous effects of debt. In a healthy, growing organization, debt can be used in order to invest in capital goods and other investments that can multiply growth. But in declining and weakening firms, debt is often used to mask poor growth and pay for current expenditures — all of which causes a vicious cycle eventually leading to bankruptcy and failure.
In America, we seem to be doing the latter when it comes to our national balance sheet. We are using cheap — for now — long-term debt to cover immediate expenses that should be covered by current revenue. We're not using debt to invest in capital goods — dams, roads, ports and other infrastructure — that can make America more economically competitive. Instead, we're spending on current consumption in the form of entitlements, health care, military expansion and government bureaucracy.
What happens when the bill comes due? Already, there are signs that the new bubble is the "risk-free" asset, the U.S. dollar.
So much global investment has gone into U.S. debt that we're gorged on it. If countries like China, Saudi Arabia, Japan and Europe decide to reduce their investments, the results could be catastrophic. At debt levels equaling or even exceeding GDP, even a 1% rise could put extreme pressure on the government's ability to meet current obligations.
To make our country great again, we need to become more, not less, fiscally responsible. We're simply not in a position to effectively engage in tough negotiations on trade and other geopolitical issues. We owe the world a ton of money.
To find out more about Armstrong Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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