The majority of Americans (except, perhaps, Washington politicians) now believe that our federal debt is too high, agreeing with the vast majority of professional economists worldwide. Some debt is acceptable, indeed even useful. Federal treasury bonds (what our debt amounts to) serve a useful purpose in the world to maintain monetary liquidity. But at the moment our Federal debt is just shy of 100% of our national GDP, or put another way, we owe about as much as the entire nation produces in goods and services in an entire year.
To have a rational argument about how much to cut the federal budget, we need to know how much we need to cut. Clearly we need to cut the entire annual deficit – somewhere between $1.6 and $2 trillion dollars depending on whom one asks – so that the total debt stops increasing.. But in fact we need to cut more than that to begin to pay down the excessive debt we have already accumulated. So how much of our current debt do we need to shed to get back to a “safe” level? Clearly the safe level is related to the size of the economy (the Gross Domestic Product, or GDP). A larger economy can sustain and service a larger debt. Here is a chart of the historical US debt ot GDP ratio over the past 200 years:
In general, economists seem to think something in the range of 50% of GDP is a “safe” and acceptable level of federal debt. That suggests that in addition to cutting the annual federal budget by at least $1.6 to $2 trillion dollars, we need to cut enough above that to shed about ½ of $14 trillion = $7 trillion in current debt. Of course we can’t pay it off all at once, so if we paid it off over 10 years we need to cut an additional $7 trillion/10 = $700 billion per year. So the rational target for next year’s federal budget ought to be to reduce it by about $1.6 to $2 trillion plus $700 billion, or something in the range of $2.5 trillion dollars. That would stop the debt from increasing and begin to pay us down to a safe level over the next decade. These are rough calculations, of course, but they give a ballpark estimate of what is really needed.
So far only Republican Representative Paul Ryan has proposed anything that even approaches what is really needed. Most other Republicans are playing political theater with these “piddling” proposals of $30-60 billion in cuts, nowhere near enough to make any real difference. Democrats are in full-fledged denial that there is even a problem, and the President has done absolutely nothing to address the issue, apparently relying on his “hands off” approach to try and insulate him politically from the painful choices that will have to be made.
So the question is, can we the American people face up to the painful choices that need to be made? Politicians, of course, will paint the direst possible picture – little babies going hungry if we don’t fund every current program at its current level. But in fact we the public need to get real about what is really important. Is it more important to spend $500 million to intervene in Libya or spend that $500 million on education in the US? Is it more important to blow $2 billion per week on the Iraq war or put that $2 billion per week to repairing our nation’s dilapidated bridges and roads? If we really want every possible medical service covered under Medicare, are we willing to accept a 30% hike in our federal taxes? Etc, etc, etc. These are the hard questions that ought to be at the center of the national debate today, not whether a trivial $61 billion cut in this years federal budget is “extreme”.
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