The Pete G. Peterson Foundation is running billboard ads in Washington, D.C. about – you guessed it – the federal debt. The ads read something like this: Each Day It Costs a Billion Dollars Just To Pay Interest On All of the Federal Debt.
Without defending the horrid tax that is government spending for even a second, readers can surely imagine the intent of the ads: let’s get people worked up about not just the amount of federal debt, but the – horrors! – developing reality that interest payments alone are gradually swallowing the total federal budget. It all seems so scary at first glance, but at second glance it’s easy to see just how contradictory the Peterson Foundation’s message is.
For one, implicit in the ads is that politicians long ago erred in offering up so-called “entitlement” programs like Social Security and Medicare. About this implied assertion, no argument there. It’s almost a waste of words to point out that whatever programs politicians can legislate, and products that the federal government can subsequently provide, the private sector could and does offer them in exponentially better form, and much more cheaply.
So with the obvious thankfully out of the way, we can pivot to the contradictions within the Foundation’s ads, but also within the analysis provided by other organizations not Peterson, including the Cato Institute. Let’s start with the insinuation that interest payments will soon enough swallow the federal budget. Really? Can the Peterson Foundation promise us this?! Think about it.
If interest payments will soon enough account for more and more federal spending, then by extension politicians will have reduced opportunity to introduce new programs or “entitlements” that will eventually balloon in size and cost as Social Security and Medicare already have. Which, correct me if I’m wrong, is what the Peterson Foundation wants in the first place.
Moving on, think about the ad itself. It laments daily interest payments by Treasury of $1 billion just to keep current on the interest on its debt. Keep in mind that Haiti’s debt in total is south of $3 billion.
Haiti is mentioned vis-à-vis daily interest payments as a way of conveying that debt alarmists at Peterson, and the Cato Institute too, are perhaps missing the point. Consider a recent report by Cato’s Ryan Bourne about a looming “crisis” related to the debt, and Bourne’s expressed view (one he describes as one held by “almost all budget analysts”) that it’s “not an option” at the current borrowing trajectory to fix what he views as a debt problem “without adjustment through raising tax revenues or cutting spending.”
Cato and Peterson are blended together because both miss the too-much-revenue problem amid their obsession with debt that is a logical effect of too much revenue. Bourne at Cato, his fellow budget experts there, along with the experts at Peterson all contend that of ways to fix what they deem a problem, tax hikes are one of only two realistic answers. Their thinking is flawed. See the Peterson Foundation ad to see why.
At present Treasury is once again paying a billion per day to service interest payments alone on U.S. debt. What does that tell us? It fairly loudly suggests that the problem is decidedly not one of too little tax revenue, rather we have a problem of too much tax revenue as all the debt and debt servicing indicates. A government that pays out over a $1 billion daily in interest payments alone is plainly taking in way too much tax revenue, thus its ability to both run up so much debt and make such enormous daily payments on the debt.
Considering total debt, contra the experts at Peterson and Cato alike, the surest sign we don’t have a debt problem is all the debt. Get it? This is once again in no way a defense of the horrid, economy-sapping tax that is government spending, but it is an attempt to bring market-focused rationale to a discussion that’s bereft of it. Countries that have debt problems generally have total debt of $3 billion like Haiti, not $33 trillion as the U.S. does.
What $33 trillion tells us is that contra Bourne’s confident assertion that “raising tax revenues” is one of two options for fixing what he deems a problem, the more reasoned reality is that we have a problem of too much federal revenue now, and the expectation of exponentially more federal revenue in the future, thus the debt. Conversely, if the goal is reducing the debt and its trajectory that Bourne contends will be “unprecedented” by 2054, the only real option is to substantially shrink the inflow of dollars into Treasury now so that lenders cease lending so willingly to the United States now, and in the future.
About this, Bourne and his fellow deficit hawks at the Pete G. Peterson Foundation will no doubt say that “cutting spending” is the other fix for what they deem a debt problem. Which is the other contradiction. Seriously, do Bourne et al truly believe that soaring federal revenues in concert with “cutting spending” won’t result in Congress devising all new programs to foist on the American people with the “savings,” programs that will grow and grow? Hopefully the question answers itself, while putting to bed the absurd notion that interest payments are the existing or future budget problem.
Republished from RealClear Markets
