Well, the elections are past and the nation may or may not have a new direction as a result. I was reading an article on the national debt and believe it’s worth everyone’s while – Democrat and Republican – to give some thought as to how our debt will impact the present and the future.

Some excerpts:

“the debts of the Revolutionary War, the Civil War, and World War I were in each case only about 30 percent of GDP. The federal debt passed 40 percent of GDP for the first time during the Great Depression and peaked at 119 percent in the final year of World War II, falling the next year to 103 percent, the same as today’s.”

…

“The essence of our debt predicament is not so much its size as its source. It has grown to unprecedented levels not because of external crises or failed or overambitious public ventures, … it has arisen from within, generated by our democracy itself. …we have built a system in which the electorate expects, and political officials provide, a higher level of personal benefits than of tax collections to pay for the benefits. The difference is taxed to younger and future generations to be paid … through higher taxes, reduced benefits, debt defaults, or inflation.”

…

“The first path [reducing expenditures at a gradual rate] is obviously the best but will remain open for only another decade or so before the demographic arithmetic begins to dictate benefit reductions that are immediate and steep rather than prospective and gradual. The second option would export some of the immediate losses, because foreigners own nearly half of our publicly held debt, but it would also injure most domestic savers regardless of their Treasury holdings.

The third solution is obviously the worst, because it destroys settled expectations, imposes windfall losses on many people of modest means, and, in the extreme, inflicts widespread misery and loss of social morale (as in Greece) or tempts outright confiscation of private assets (as in Argentina). Confiscation is not so alien from the American experience as one might suppose: It’s what FDR did in 1933 in seizing everyone’s gold coins at a fraction of their value.

Whatever the path, it will lead to a welfare state that is more constrained and limited and less generous than the one we are enjoying today. “

…

“a central responsibility of government …is to be prepared for big negative surprises. The purpose of maintaining low public debt is not to adhere to abstract notions of fiscal rectitude. Rather it is to maintain the government’s capacity to respond forcefully to severe emergencies that citizens cannot manage on their own. Such emergencies — foreign aggression, epidemics, natural disasters, financial collapses, and economic depressions — have occurred frequently throughout American history. Actuarially, at least one is likely to occur in the decades that it will take to reduce our debt to a manageable level of, say, 30 percent of GDP without risking serious social dislocations. If a severe shock should come our way soon, the government’s response will be seriously weakened by its inability to borrow massive resources immediately. And the very fragility of our financial circumstances will invite emergencies of the man-made kind.”

The excerpts are from an article in National Review (July 21, 2014) entitled “Our Democratic Debt” written by Christopher Demuth Sr., a distinguished fellow at the Hudson Institute and president of the American Enterprise Institute from 1986 to 2008.

https://www.nationalreview.com/magazine/2014/07/21/our-democratic-debt/