Economists of major banks and the government seemed to unanimously agree that the national debt is on an unsustainable path. This realization is, however, ironic. We’ve been saying for a very long time that the national debt was not sustainable. Yet, our warnings were conveniently dismissed by these same economists who told ordinary people that they did not have to worry about the national debt because we owe it to no one but ourselves. The truth can no longer be hidden today.
The national debt of the United States is considered to be unsustainable because it grows faster than the economy. The U.S. economy heavily relies on debt to grow. The problem is far more fundamental. Using debt to grow is an unsustainable approach to growth because it uses the value of future resources to present consumption, which slows the real growth of the economy. The U.S. economy has a GDP of more than $25 trillion and a debt of more than $33 trillion. This means that the economy is overleveraged and it must pay more in interest than investing in other productive ventures.
The U.S. national debt continues to grow at an unprecedented pace because the U.S. government is very spendthrift. The U.S. government is absolutely not interested in turning surpluses. It accumulates deficit after deficit, and it has to keep borrowing to pay back each deficit incurred. The question to ask ourselves is why. Why is the U.S. government not interested in turning surpluses? Why does it continue to accumulate deficits over and over?
The answer is very simple. It is purely for political purposes. It is politically profitable for the U.S. government to produce deficits rather than surpluses because the more the government spends on various programs, and initiatives; the more popular its actions become in the eyes of public opinion; and the more popular its actions are considered, the larger becomes electoral bases. In other words, government deficit strengthens the government’s credibility and legitimacy in the eyes of the voters.
What is politically profitable for government is economically harmful for voters. Voters aren’t just voters; they are also taxpayers, producers, and consumers. While the national debt is certainly profitable for government, it is undeniably harmful to taxpayers, consumers, and producers.
The national debt makes it extremely difficult for individuals and businesses to borrow because it increases borrowing costs. Moreover, the relentless growth of the national debt exacerbates wealth inequality as it increases the cost of living for all social classes, and makes it harder for low- and middle-income households. The government relies on taxes to make debt payments. These taxes place a larger burden on low-income individuals on consumption, which furthers wealth inequality.
The national debt is unfortunately not going to decrease because government is not willing to cut its size. Most American voters grew accustomed to the idea that government is a necessity to address economic and social concerns. Thus, it has become unimaginable for most Americans to think of reducing the size of the federal government although big government is the reason why wealth inequality persists, and the cost of living has become exorbitant. If the national debt continues to grow at this pace, the ultimate consequence of this unhealthy growth will be a major financial crisis.
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