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Putting the National Debt into Perspective

Please also feel free to check out my guest posts at Engineer Your Finances, Financial Mistakes of Young Families, and at Punch Debt in the Face, Job Hunting Mistakes I REALLY Hope You Don’t Make. :-)

Here’s an astounding take on the national debt from Yahoo Finance, 13 Ways to Spend $1 Trillion.  Apparently the government spent $1 trillion more (yep, that is $1,000,000,000,000) than it made in the first 9 months of the fiscal year of 2010.  Let’s see what Yahoo Finance said $1 trillion can buy:

  1. 40,816,326 New Cars
  2. 5,574,136 Typical American Homes
  3. 140 Billion Hours of Labor
  4. A Year’s Salary for 14.7 Million Teachers
  5. The Annual Salaries of All 535 Members of Congress for the Next 10,742 Years
  6. The Star Power of LeBron James for the Next 50,000 Years
  7. 1.33 Trillion Chocolate Bars
  8. 1,333 Celebrity Divorce Settlements
  9. A Guaranteed $6.3 Billion Payout for a 65-Year-Old Man Every Month for the Rest of His Life
  10. A One-Year CD Yielding $15.5 Billion in Interest
  11. Annual Base Pay for 59.5 Million U.S. Army Privates
  12. Replace Annual Incomes for 19.2 Million American Families
  13. Pay the Estate Taxes for 2,222 Billionaires

Obviously, if you divide 1 trillion dollars by whatever a thing costs, you will get some big number results.  The number is insane, but the sickening aspect of it to me isn’t the $1 trillion spent in 9 months or the actual total debt of $13 trillion, it’s the fact that at some point it will be handled in one way or another.  How much will our taxes increase?  How many programs will have to be cancelled?  What will our economy be like during the turning point?  I am personally frustrated at feeling helpless.  I just can’t comprehend why the generations ahead of me seemed to have gone out of their way to make our future incredibly difficult.

I try to battle that helplessness with personal financial stability.  Our bills are paid.  We save for our own future.  Our mad money is even budgeted for so we don’t feel guilty about not saving every dime.  Those steps don’t make the fear for my future dissipate, but it does help.  I try not to worry about things I cannot change, but articles like this make that difficult to do.

What do you think?  Are you having a hard time wrapping your head around it too?  What are your guesses for our future?

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30 comments to Putting the National Debt into Perspective

  • My professional opinion is that NOW is not the time to be worrying about the debt. Worrying about it now has an official term. It’s called “Hooverism.”

    We should have been worrying about the debt during the last boom. Instead of saying, “Things are going great, let’s have tax cuts,” we should have been saying, “Things are going great, time to shore up the debt we accumulated when things weren’t going so well.” That’s not as popular a message though.

    Governments are not like people. They live forever. They can create money by causing inflation. They get their income from taxing. When you cut spending/raise taxes when times are bad, the economy withers even further and tax revenues drop even more.

    We spent much more than we made during the Great Depression. BUT when the economy picked up, it didn’t actually take that long to pay back that debt. Unfortunately, Reagan discovered that you can spend without taxing and everybody loves that. None of the presidents after him (Republican or Democrat) wanted to change that. Hence the enormous debt.

    I would be in favor of forced debt repayment pegged to economic benchmarks. When the economy is going very well, *then* is the time to cut spending and attack the debt. This type of legislation is called “sunset legislation” and it tends to work because the people who are voting for it are not the people who are going to be affected by it in the future. It is much easier for a politician to just not stop a difficult but necessary law that was already passed than it is for him or her to vote for something that is going to have negative effects right now. (It is, in fact, how the last Social Security reform was passed.)

  • More and more, the national debt seems like just another brick for people between 20 – 40 years old. I have heard increasing grumbling in these generations at the world their boomer parents left for them: from looming environmental disaster to insolvent entitlements (medicare, social security, etc)…

    Regardless of the context, many in their 30s are beginning to feel that their parents cashed in at their expense. Though perhaps not completely fair (demographics play the biggest role?), there is certainly a degree of truth — young folk will be paying for the mistakes/joyrides of their parents for many years.

  • Rob

    Our grandchildren are screwed…

    But seriously though, Nicole is absolutely right. Something needs to be done NOW. If we keep ignoring it (just like they keep ignoring social security), the future generations, including us (I’m 26) are going to be paying for it.

    You think are economy is bad now? Just wait until what happened to Greece happens to us.

    All the more reason to get your own financial house in order so that when/if things blow up, you are prepared.

  • BFS

    @Nicole, I completely agree that we should have been operating with less debt WAY before now, but now is what we have. There needs to be some debt repayment and I would prefer that the government saves money through efficiency, cutting war spending, and then by increasing taxes – in that order. There is no reason having a toilet seat installed should ever cost more than $100, much les tens of thousands – I’ll call the plumber myself…

    @Split Cents, my mom said this almost the exact same way. She apologized that her generation of voters and government leaders seems to be having a buffet at my expense. She wishes that they would have made some hard decisions 20 years ago that would have corrected a lot of this before my sisters and I would have been effected long-term. Too bad my mom isn’t an elected official…

    @Rob, I know this may sound cynical/sarcastic, but one small (tiny) reason involved in our decision not to have kids is that they may be in a pretty screwed up world anyway. It’s a super tiny reason, but it’s there. I’ll just try to continue our financial stability so that tax hikes and government inefficiencies don’t screw up my personal plans for retirement…

  • Rob– I think you mean Nicole is absolutely wrong. (But Nicole disagrees and not only thinks she is right but has also spent years studying this stuff.)

    We are so far away from Greece in terms of profligate spending it’s ridiculous. I wish I could show you the bar charts on promises compared to projected GDP. Imagine if you will, dozens of small bars representing various developed countries, then two ginormous bars on the right representing Greece and another European country (I can’t remember which off the top of my head).

    To quote Dick Cheney, no need to go all “Henny Penny the sky is falling.” We need to fix the problems we have now and sunset longer term problems later. Otherwise we’ll have a lost generation of early involuntary retirees and undernourished kids, which will cause even worse longer-term problems.

  • No, BFS, in a recession, the worst thing you can do is stop spending (or raise interest rates, which is similar but works faster, but has a floor that we have hit). Even if you’re just throwing money out of a helicopter that’s better than cutting spending. Each dollar spent has a multiplicative effect that gets the economy going, allows people to purchase more and their purchases help others etc. Yes, spending isn’t the end-all and be-all, but most people who have been unemployed for 99+ weeks, are doing too little to be healthy mentally or physically.

    Ideally we want the economy to be on a flat slow upward trend. We want to flatten business cycles. We flatten them by spending when times are bad and paying for that spending when times are good. When you spend too much when times are good the cycle’s peaks are too high leading to an inevitable trough that’s more painful than it needed to be. When you don’t spend enough when times are bad, you just make that trough worse.

    Now is NOT the time to be cutting back on spending. Yes, by all means make government more efficient. Yes, the most efficient way of rebooting the economy is food stamps, then spending money on infrastructure and teachers and other things that both make short-term jobs and have long-term benefits.

    I’m a democrat, but I’m also an economist. There are times to spend and times to pay back. If we pay back now, fewer people will be employed and there will be less tax revenue, despite hire tax rates, and the debt will grow even bigger. That’s just the way it works mechanically. We learned this lesson back in the early 1930s, but I think the people who remember it from living through it are dying out. (“We are all Keynesian now.”)

    It’s different with people, who don’t live forever, can’t print money, and can’t tax. People should be tightening their belts and getting rid of debt. But people are not governments.

  • BFS

    @Nicole, okay, so when the economy starts rolling along regularly again, that’s when it’s best to start paying back debt. That sounds right from the one Economy 101 class I did take, lol.

    My point is that inefficiencies could save tons without hurting anything. There’s too much double and triple checking expenses and flat out corruption. I’ll concede that spending and tax hikes will have to wait (but are going to be necessary, which sucks), but stupid spending that doesn’t help anyone needs to be chucked out the window…

    And just to be completely open, I don’t have any party affiliations…I have most recently been voting third party to appease my own personal problems with our current government. I live in Texas, so I may be one of like 100 people that don’t vote Republican, but I feel like it’s my own personal protest.

  • Yup, it is Econ 101. All the macroeconomics that is useful and true is taught in undergrad econ 101 and hasn’t really changed since the 1970s when we learned about stagflation.

    And yes, Obama is all about efficiencies. They’re actually doing a lot of good work, mostly behind the scenes. I’m especially impressed with the work they’ve gotten through on student loans, not to mention the health care legislation (which isn’t perfect, but does do a lot of needed things). It’s amazing when you go to a talk on something by an expert and are thoroughly convinced and then the government actually implements it. That hasn’t happened in my lifetime as a grown-up until recently.

    It’s hard because they don’t have enough people and a lot of things about government are naturally inefficient, even without another party trying to block candidates. Even with bright people doing their best, there are going to be mistakes and things are going to take a long time to clean up.

    I do think that in Texas it’s hard to really understand the extent of the recession for most people in the country. TX is doing really well, partly because oil is doing well and mainly because they didn’t have that housing boom/bust (they had theirs in the 1980s and legislated to make it difficult to do what CA did). Driving through TX it’s hard to believe that anything is going wrong and it’s easy to suggest cutting back. Driving through Michigan, on the other hand, gives you a completely different view. It’s heartbreaking.

  • BFS

    @Nicole, you’re right in the fact that the recession really hasn’t hit us as hard. There are more foreclosures, job losses, and salary freezes than normal (I’ve been on one for 2 years), but it really is nothing compared to Detroit. I just want the economy issues that this OMG debt will cause to be handled sooner rather than later, consider it young impatience…

  • At least it’s not a furlough… and I have a ton of relatives in the auto industry in the Midwest. They have been directly and positively affected by the Cash for Clunkers program. It was like night and day in terms of orders for auto parts and restarting hiring in the auto industry.

    The fastest way to pay down the debt is to get out of the recession. Anything else will keep strangling the economy and result in an inability to pay it down. But sure, call your legislator and ask to push for sunset legislation on the debt issue. Once we’re flush again nobody is going to want to pay it down– they’ll be demanding tax cuts.

  • BFS

    @Nicole, so what I’m hearing is that now is not the time and when it is, nobody will do it. Crap.

  • Not necessarily– we did pay our way out after the great depression and other smaller recessions. The debt/surplus thing went really well until Reagan. (In his defense, he didn’t know we weren’t on the wrong side of the Laffer curve and that supply-side economics was completely bogus given the then state of the US. Funny how too good to be true can be so popular.)

    It’s just really hard politically. But it can be done because it’s been done in the past. Sunset legislation now would be a great way to get around it. The Republicans would get a political win (and they’d get back to the small gov’t message), the Democrats would be able to push needed things through now, and we’d be a lot better off when the economy does turn around. I’m not sure if any of that is on the table right now or not, but I wouldn’t be surprised if it was.

    It ultimately depends on how much the Republicans believe in what they’re saying compared to just wanting to score political points with the message. Personally I have small hopes that hidden deep inside the average senator or congressperson there’s a little glimmer of public service that really does want to do what’s right for the country, no matter what their political persuasion.

    And don’t forget the debt when times are good, even though it’s easy to do.

  • Hi Crystal!

    Personally, I feel REALLY uneasy with our national debt. I hate debt of any kind anyway, but having such a huge obligation hanging over the US is really scary to me.

    It does give me comfort knowing that our own personal finances are in check, but I also wonder what will happen to bring the debt down. The U.S. has to do something, and soon, because we can’t just keep going like this.

  • I am nervous about the economy in general, and not just the debt. When I think about the general instability and government bailouts, I figure someone is going to have to pay someday. And, it can’t just be the ‘rich’ that bail the country out. Joblessness, foreclosure, you name it will all have its consequences.

  • always love talking about this topic as it can really go both ways. i totally agree with nicole that now is not the time to be worrying about the deficit. We had almost the entire decade to worry about it, ignored it, and now are paying for it. Instead, I do think now is a good time to really trim wasteful spending. it will appease both political parties and will set the country up to tackle the larger issues of insolvent entitlement programs and the need to raise taxes in the future. Ideally the economy will recover by 2012, tax revenues will begin to increase and once the political landscape is shaped after the election the hard decisions need to be made. Defense spending needs to be cut dramatically, im talking at least 30%. we outspend every other nation on earth combined when it comes to military spending, so lets do some cutting there. no need to have tank divisions anymore, instead focus on future weapons that will minimize casualties. then, the entitlement programs need to be trimmed and reformed, aka higher SS age etc. lastly, the necessary tax increases will come, there is no way around it. ive always believed in a VAT as it taxes consumtption and not income thus it gives us more power over how much we are taxed without punishing those that earn a lot.
    Preferred Financial Services Blog

  • sam

    @Nicole: Econ 101, or a even basic Macro class, might delve into some Keynesian theory, but that hardly makes your political/economic viewpoint an economic principle.

    Any generic multiplier effect of general gov’t spending that you speak of is completely hypothetical. The extent to which a multiplier effect even exists depends on a multitude of issues, from where its spent to the length of time of the spending program itself. The wrong kind of spending can create disruptions, impediments, and faulty incentives in the private sector, and quick spending spurts can create instability and uncertainty in markets. In the real world, a generic ‘multiplier’ is virtually impossible to quantify.

    What we must admit is true is that virtually every dollar that is spent by the government must eventually come out the the private sector. Money can be printed, but not without an inflationary effect that ultimately has the same result for privately held dollars. What is undeniably true, not only from our economics textbooks but from our view of history as well, is that our most efficient “multiplier” is found in the private sector itself. Private investment yeilds production, revenue, employment, and, ultimately, more investment. Free markets are historically proven to be much more efficient multipliers of dollars than government.

    This is exactly why tax cuts make more sense in a recession than increased spending. The main impediment is not economics, but an ideological barrier, one that is convinced that to achieve the best outcomes we must have knowledgeable elites directing resources from the top. But from an economic standpoint – and from a historical standpoint – quite the opposite is true. In general, as markets move from being less free to more free, higher levels of growth occur. In comparison, the stimulus bill has failed to meet virtually all of its economic targets. Our auto and housing markets, while they enjoy a temporary revenue boost, are now experiencing lower revenues than we might have expected had those spending programs never been enacted.

    Our ballooning debt should indeed be a concern. As Greece, Spain, and others show us, there is quite obviously a tipping point where the amount of public debt and the level of entitlement commitments create an environment of economic and political uncertainty that can be devastating for the private and public sectors alike. It has now reached 91% of our GDP. Obama’s 10 year projections do not foresee us getting back to even Bush-era deficits. We would be foolish to think that we are immune, and we would be foolish to continue spending habits as if we thought we were.

  • sam

    @Nicole: A couple more notes.

    On Reagan: inflation was decreased to 4.4% from 12.5% and unemployment decreased from 7.5% to 5.3% during Reagan’s two terms, all while reducing the top income tax bracket from 70% to 28%. He took office during a recession, and there was a general economic boom for the next 20 years following his tax cuts. I think its clear that he was indeed on the right side of the Laffer Curve. The rate of increase in federal tax reciepts actually grew following the Reagan tax cuts. Increased defecits were not a result of federal revenue, but federal spending.

    On Hoover: this is essentially a red herring as a comparison to modern conservatism. Hoover denounced laissez-faire thinking, and was actively pro-regulation. He raised the highest income tax bracket from 25% to 63%, doubled the estate tax, raised corporate taxes by almost 15%, and imposed tariffs on thousands of imports. FDR campaigned against Hoover for thinking “that we ought to center control of everything in Washington as rapidly as possible,” and for “leading the country down the path of socialism”. His blend of protectionism, bureaucracy and tax hikes seem to me to be the embodiment of what modern conservatives campaign against. As a comparison to a today’s politics, his policies are much more comparable to contemporary liberalism.

  • Yes, I am worried… Especially for my kids. Perhaps that’s why I’m trying so hard to give them a financial boost. I know that the future is going to be somewhat crazy…

    I think the government is too far left or right. We need officials that are like financial bloggers in the office. Someone that can make intelligent decision instead of following the right or left agendas like a sheet of music.

  • @Stephan– Totally agree with you on all points, except I’m not so sure about VAT (not saying it’s bad, just that I haven’t looked at it all that carefully so I don’t have an opinion). The biggest worry going forward in the policy circles I frequent (that is, not defense, though I have seen some pretty stunning presentations of worthless military R&D) is Medicare. The CBO estimates on projected costs are terrifying. That’s one reason health care reform was so important… sadly the most economically optimal fixes are not the most politically feasible, but they’ve made some progress. There’s still a long way to go.

    @Sam– I don’t feel like addressing you point by point, mainly because it’s been several years since I looked at these and my notes are in a box somewhere, but have me on record as disagreeing, though I’ve heard those arguments before (you’re a big Pat Buchanan fan?). I’m fairly sure if you look in the NYTimes you’ll find a cogent disagreement from Paul Krugman, who, unlike me, has a Nobel Prize and often addresses these issues. Or you can look in an intermediate macro textbook and then look up the actual articles in the index and see what you think. Personally I was convinced.

  • oh how funny! Krugman addressed the Laffer curve TODAY.

  • AJ

    Look at a chart of tax revenue. They are closely tied to Gross Domestic Product, NOT tax rates. The way to bring more money into the government is for businesses to start thriving again and to get more people working. We do this by lowering the barriers to creating successful businesses and more jobs. Read this article from the Wall Street Journal about why a businessman can’t hire more people (I’ll give you a hint: taxes and regulation):

    http://online.wsj.com/article/SB10001424052748704017904575409733776372738.html

    Also, on the Laffer Curve, prize-winning economists and political scientists DON’T KNOW where the Laffer Curve bends. Theoretical models and formulas designed by so-called social scientists can’t begin to address the realities and complexities of the real world.

    I also have to right the record of Reagan. When he cut taxes in ’83, unemployment dropped by 2 percentage points within the year. And, he TRIED to cut spending and government programs, but when Congress is controlled by the opposition, it is nearly impossible for the President to get what he wants in his budget. So, the tax cuts lowered unemployment and inflation and increased government revenue, but our Congress failed to stop spending.

  • sam

    @AJ: well said, couldn’t agree more.

    @Nicole – Krugman has some good ideas, but in the spectrum of economists he falls squarely in the progressive keynesian category. I guess as much as we like to talk about economics as if there were consensus, the camps range from Hayek to Marx and everyone in between. I’ve never met a Krugman NYT column that I found agreeable or fully intellectually credible. He may be an economist by trade, but his columns are for the most part ‘values’ driven, and therefore primarily political (and very much to the left, i would add).

    Pat Buchanan is not exactly an economist, and as much as his politics reach into economics he is somewhat of a protectionist himself. No, as far as economists go, I think heavy hitters like Friedrich Hayek and Adam Smith, to name a couple, offer proven alternatives to Krugman’s entitlement state model. If we really want to put ourselves onto a trajectory of long-term economic growth, we need fiscal responsibility (low spending, balanced budgets), limited government (little intrusion into the marketplace), and free markets (low taxes, no more regulation than necessary).

  • Krugman is mainstream (on the other side of the mainstream coin you have conservatives like Jim Poterba… but he also says we weren’t on the wrong side of the Laffer curve in the 80s, and he says to get rid of the mortgage tax benefits). Marxists aren’t. Austrian-school economists (like Hayek) aren’t. Adam Smith is fantastic, especially if you read BOTH his books (he leans liberal in “moral sentiment”), but he also died more than 100 years before the Great Depression. By far the majority of economists say we weren’t on the wrong side of the Laffer curve in the 80s. Like I said, it has been a long time since I read the academic articles empirically showing that, but they convinced me at the time.

    AJ– Reagan didn’t try to cut spending except in small areas, like cutting off support for widows and children (I had friends affected by that spending cut). You’re probably too young to remember his attempts on Star Wars. He was huge on defense spending. Luckily for us many of his proposed projects didn’t get funding but the Soviet Union worked as if they might and bankrupted themselves.

    Jeez, y’all’re acting like I said to raise taxes right now which I specifically said was a bad thing to do until the economy recovers. But no, I do think a combination of increasing taxes modestly (maybe to Clinton levels, those were good times) and decreasing spending in the future after the economy recovers is necessary.

    Regulation is necessary when there is market failure. I think it’s pretty clear that the lack of regulation has lead to market failure pretty darn recently. Don’t regulate when there isn’t market failure, do regulate when there is. Figuring out which is which is the tricky part. You can’t just say “regulation is good” or “regulation is bad.” Ideologists have no place in policy.

  • sam

    Nicole – Hayek recieved a nobel prize in economics just like Krugman. Hayek also received a U.S. Presidential Medal of Freedom. The Thatcher/Reagan revolution was very much influenced by Hayek, and more modern economists like Milton Friedman and William Easterly consider him a major influence. I would say he is certainly within the mainstream. But that’s beside the point.

    THE MAIN POINT HERE is that government spending does not occur in a vacuum. Virtually every dollar spent must first be extracted from the private sector, ultimately through taxation. If we are advocating for getting money where it has the greatest multiplier effect, we must necessarily focus on how we can best keep money in the private sector, not how to funnel it towards gov’t spending.

    I certainly agree with you about regulation: like “spending”, we cannot talk about it as if it were summarily good or bad. With both, though, we tend to overdo it, and that tends to retard growth. I’m not sure lack of regulation led to our recent recession – it did begin as a mortgage market crisis, at a time when our mortgage markets were more politicized than they have ever been.

    Again, on Reagan: you do realize that his ambitious “Star Wars” program gave birth to our anti-ballistic missile system? Also, I still have a hard time understand your claim that Reagan wasn’t on the wrong side of the Laffer curve? If a 70% tax bracket isn’t on the wrong side then what is?? I would say that a cursory look at economic indicators following his tax cuts – inflation, unemployment, GDP, federal revenues, etc. – would suggest that he was correct.

    Bottom line: attempts to spend ourselves out of the recession have, and will continue to, disappoint, and our growing debt should be of serious concern. Time to unleash the private sector.

  • BFS

    Wow, I let the site go on its own for one evening and I come back to some major awesomeness!!! I should let go of the reigns more often…

    @Nicole, Sam, and AJ, thanks for your fantastically well-formed comments! I love the back and forth. I have nothing to add since I absolutely sucked in economics, but thanks for the great discussion!

    @Stephan, wasteful spending is frustrating me to no end. If we do need to spend ourselves out of difficulties, than we really should cut back where we can, right?

    @Amanda and Everyday Tips, at some point the debt will get so bad that our government will have no choice but to tighten our belt. I’m just worried about how awful it will have to get before that happens.

    @Money Reasons, those accounts you have for your children will be blessings. I hope they let you know how much they will appreciate them.

  • The national debt makes me feel helpless also. But, I have no idea how to ease my feeling of helplessness. Oftentimes, I simply wonder how did it get so bad? I have a great sense of apathy for government and more and more I’m feeling like I have less and less of an impact on governmental decision making.

  • BFS

    @Young Mogul, “I have a great sense of apathy for government” – this is where I pretty much am at…I can’t seem to get worked up about all of the policy changes going on since I feel like every change that goes through either doesn’t effect me or it changes my life for the worst. It’s hard to be motivated when you feel beaten down…

  • I guess if we all star managing our money well it won’t be a problem. I often thought of becoming Amish somehow so I don’t have to give the Government money anymore. They just waste our money and blame it on either Democrats or Republicans. The short answer is simple, quit spending our money.

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