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Fix the deficit problem now

Dec. 2, 2012 - 01:28PM   |  
By J. DAVID PATTERSON   |   Comments

The presidential election is over, the sun is peeking from behind the clouds, and life in America can be truly wonderful once again, right? Well, maybe not so easily. Some people might say it’s “morning in America” again, but that dark cloud obscuring the sun is our national debt.

Two views of the debt seem to hold. One side is convinced that the rise in the national debt is leading us to an economic calamity of galactic proportions that can only be avoided by reducing government spending. The other view concludes that the national debt is troubling, but nothing a good dose of taxation wouldn’t cure.

The congressional battle lines are drawn — again — but no solution is in sight. If there isn’t a solution, and if 2013 begins and the already enacted tax hikes and spending cuts take effect without revision, there will be serious consequences for pretty much every sector of our economy.

Beyond that is the unknown: What would it mean to us if the debt continued to increase apace? In particular, what would a continued increase in our national debt mean to America’s ability to afford the defense it needs?

To put the subject in context, as of this writing, the gross national debt is $16.3 trillion. The latest U.S. gross domestic product, the total value of all the goods and services as of the end of September, was $15.8 trillion. Notice something? That’s right. Our debt is larger than our worth, just like some European countries that we’ve been reading about in the press.

Additionally, the trend of increasing national debt is not comforting. Comforting in this case would mean that the trend would be leveling off or, hope against hope, actually decreasing. But it’s not. To appreciate why the national debt is worth making a fuss over, look at the interest the U.S. must pay on servicing the debt.

The net interest on national debt is a significant data point describing the financial condition of the country. For countries, how much interest they pay on debt is a big deal because of the large numbers involved: billions and trillions of dollars.

The Office of Management and Budget publishes the Fiscal-Year 2013 Historical Tables Budget of the U.S. Government. The statistics for the entire U.S. budget are displayed back to 1940.

From these historical budget tables, we learn that the greatest level of spending on World War II was 37 percent of GDP (or $83 billion) in 1945, but the interest on the national debt was $3.1 billion, or 1.4 percent of the GDP. At the end of fiscal 2009, the percentage of the GDP represented by total spending on national defense was 4.6 percent, or $661 billion, but the interest on the national debt was $186.9 billion, or 1.3 percent of GDP.

Since 2009, the cost of the net interest in the national debt has steadily increased. OMB estimates that the spending on national defense will decrease precipitously. Defense spending will be reduced by 18 percent, from a high of $716 billion in 2012 to a projected $589 billion in 2017, according to the OMB tables. Defense spending will be 2.9 percent of GDP.

The net interest during this decline in defense spending will have increased from $225 billion to $566 billion; an increase of 2½ times. The net interest on the national debt will be 96 percent of what the U.S will be spending on national defense. In real terms, we’ll be paying as much interest on our debt as we will be paying for everything the Army, Navy, Air Force and Marine Corps have and do.

Money spent on national defense provides tanks and planes and ships and military bases, and soldiers, sailors and airmen. Money spent on net interest provides the nation nothing, nada, nix, zero. Or does it? A willingness to borrow so much that we pay as much in interest on our national debt as we spend on national security provides a clear picture of fiscal irresponsibility.

Get the U.S. fiscal house in order. Do not allow the OMB projections to become reality. There needs to be a fuss about the national debt while we are still able to fix the problem. The longer we wait, the harder it will be.

J. David Patterson is executive director of the National Defense Business Institute at the University of Tennessee and former principal deputy undersecretary of Defense, comptroller, in the administration of President George W. Bush.

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