The National Debt – A Weapon (or Tool) of Mass Destruction

The concept of compound interest is one of the coolest ideas there is.  Most people don’t give it much thought, but it is so elegant and so simple.  It has caused me to work toward creating endowed funds for universities, churches, community foundations, boy scouts, etc.  The wonder of an endowed fund is that you raise money once and that money provides benefits forever.  We helped endow a fund for my son, Anthony’s eagle scout project and now every child who comes to the local Family Violence Center will receive a new book bag and a couple of books, forever.  Did I mention how cool that is to me?

Compound interest works the same way, or, you might say, “in reverse” when it comes to debt.  If you borrow money, you owe interest on that money forever (or until you pay back the loan).  Our federal government has now incurred a debt of $16 trillion.  The interest rate we pay keeps changing, but let’s use 3% for simplicity (it is actually near historic lows this current year).  So, we owe about $480 billion per year to service the national debt.  In the title of this blogpost I have called the level of national debt a “weapon of mass destruction.”  Since I work as a scholar, I spend much of my time encouraging students, prospective scholars, and other scholars whose work I peer-review to be accurate in descriptors and definitions.  Having said that, I do think we’ve reached a level of debt where it is accurate to label that debt as “mass destruction.”  Whether you are liberal or conservative, whether you think government should spend more money on food stamps, bridges, weapons, wind-energy subsidies, Sesame Street, or education, our debt service forces us to spend money on interest payments rather than any of those things.

I will concede that the label “weapon” is not very accurate.  A better term is “tool.”  Now, let’s make sure we are clear about something.  Just as we raised Anthony’s eagle project money once and it generated benefits forever, when we incur debt in one year, we pay to service that debt forever.  In the last fiscal year alone, we incurred about $1.1 trillion in federal debt.  The annual debt service will be about $33 billion.  We owe that $33 billion, every single year, forever.  Put that into whatever perspective helps you understand that figure.  I work at a regional university that has an operational budget of about $70 million.  So, the debt we incurred in one year cost us the ability to operate about 480 universities every year forever

I am assuming that everyone reading this has borrowed money at some point in her life.  I hope you are a homeowner, or will be some day.  You’ve probably seen the example that if you borrow $100,000 for a 30-year mortgage at 6% interest you will pay back a total of $215,838.19 – more than double what you borrowed.  That’s compound interest working against you.  After 30 years, though, you don’t owe any more money because you actually started paying back some of the $100,000 with your very first monthly payment.  Some of you may have credit card debt, which is really bad news.  If you do, you know the pain of credit card balances that seem never to decrease much if you make only the minimum monthly payment.  This payment traditionally includes so little payback of the loan that the debt will not even be paid off in 30 years.  Some people have used one line of credit to help make the minimum monthly payment on a different credit card.  If you are, or have been in that position, you know how incredibly, deeply painful that is.  That, however, is exactly what we are doing as a country, but most of us “feel” absolutely no pain.  Each year, we do have to make principal payments to U.S. bond holders, but we make those payments by borrowing other money to do so.  Then, we borrow even more money to pay for the additional debt from the current year’s budget shortfall.  Again, from last year’s shortfall alone, we have lost the ability to fund 480 universities forever, or 32,500,000 typical social security recipients forever, or 960 new B52 bombers each year forever. 

To be precise, forever may not be entirely accurate.  The debt service payments will reduce when we start to pay back the $1.1 trillion we overspent the fiscal year just ended.  Can you ever imagine a day when we pay back even $1 against our national debt (which dates continuously since 1834.  In the 1800s we ran surpluses 59 years.  Actually, other than three years of Civil War, we ran a surplus the other 97 years combined)?  It hasn’t happened since 1957.  Whether Democrat, Republican, Green Party, Libertarian, or any other political party, I invite you to consider whether any expenditure this year is worth what it will cost us, forever

I also ask you to ponder a moral question.  In my fifty years on this planet, the U.S. federal deficit has increased from about $2.8 trillion to $16.1 trillion.  That means that the people who have been alive during that time have “chosen,” by voting, indirectly, to consume $13.3 trillion dollars more than they have paid.  Who will get stuck with this bill?  A generation, or two, or ten that follow us.  I don’t know about you, but I don’t think there is anything I require that I would force, through government, my children and their friends to provide me.  If I were starving, or homeless, I would voluntarily ask for their help, but I don’t think they should be forced, by law, to help me. 

The bad news is that we cannot keep adding to this debt indefinitely.  I believe I have learned enough about economics to know that various economic conditions will occur.  What no one has become expert on is knowing when they will occur.  It is a virtual certainty that Greece will “go under” if that country does not start spending less than it takes in.  It is a virtual certainty that the United States will too.  I hope it doesn’t happen in my lifetime.  At the same time, I don’t want it to happen in the lifetime of your children or their children or their children or their children…….

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