Today’s Courier Herald Column:
Yesterday in my inbox I received an update from Fix The Debt, a national interest group formed to push for bi-partisan progress toward not only averting the fiscal cliff issue looming with an immediate deadline, but to emphasize the nation’s $16 trillion national debt which continues to grow. They are pushing a blend of increased revenues and lower spending to chart a path to debt reduction.
The issue of the day is how a breakdown in talks would affect Georgia. Co-Chairman Martha Zoller emphasized the reality of the problem, saying in the statement “A lot of times, though, it seems to feel like an abstract idea. The reality is that failing to address our fiscal problems could have a huge impact here in Georgia – lost jobs, slower growth, and greater taxes for families.”
The numbers aren’t abstract. The group cites a George Mason studies indicating that Georgia would lose 55,000 jobs if the cliff issues remain unresolved and tax rates are increased across the board while spending is cut as mandated by sequester.
Georgia would face other problems with its state budget as well. According to the group, “If lawmakers fail to avert the fiscal cliff, 18 percent of the federal money that is sent to the states will be eliminated. Those cuts will reduce funding for important local programs including education, housing, and low-income initiatives. Curtailments of federal grants will cut out 8.5 percent of all revenue Georgia receives on an annual basis, according to the Pew Center on the States, much of which has already been allocated into the state’s future spending plans. The combination of tax hikes and nearly across-the-board federal spending cuts would have profoundly negative effects on working families, funding for K-12 and higher education, and small businesses and major employers alike.”
I spent most of last week in Washington, and was able to speak to several members from the Georgia delegation regarding the ongoing negotiations. One discussion in particular sticks out. Austin Scott is finishing his first term, and is President of the Tea Party infused class of 2010.
The conversation was familiar. I first met Congressman Scott when he was a State Representative, and he frequently brought data to our meetings. Last week, he was holding a simple spreadsheet for me. It had several columns of data regarding the federal budget and debt over the past few years, but there was one of particular interest to him.
We’re rapidly approaching a level of debt that is equal to our entire national GDP. It would take all goods and services produced by our country in one year to pay off the debt. It’s a way to measure the debt in relative terms, and a debt the same size of GDP is somewhat alarming.
Worse, however, is the growth rate of our debt relative to GDP. In 2007, the national debt was just 65% of our GDP. Today, it is 98.7%. Debt continues to grow faster than our economy, and the threat of a recession – when the economy shrinks in size – makes the situation more grim.
Scott is concerned, but remains optimistic. But he wanted to make it clear that these are the numbers that are driving Republicans demands for spending cuts. He also made it clear that those in the House are looking at the big picture. Unfortunately, the magnitude of the problem isn’t being captured by the current sound bites.
The reason we need to fix the debt is simple. While the US economy and budget certainly have problems, we are also living at a charmed moment in time. Europe is currently in worse fiscal shape than the US. China has industrialized at such a rate that they must cooperate with US fiscal policy so that we can remain their largest customer and keep their factories busy.
The result is that interest rates are at record lows. The cost of carrying $16 trillion in national debt is therefore artificially low.
Eventually, Europe will right itself and China will grow other markets. US interest rates will go up. Debt that we’re financing for .5% could easily rise to 5%. While that doesn’t sound like much, it’s a magnitude of ten times what our interest costs would be. We run the very real risk of interest on this debt dwarfing all other spending programs in the very near future.
The fiscal cliff is getting our attention, as it should. But the real focus needs to be on the debt, not just the deficit. It is time to fix the debt.