“Build the
Wall!” A distraction from debt
Edward Renner
The biggest threat to our
national security is borrowing against the future, not the southern border. The
Federal debt and the future economic security of the country should be the
context for the debate over building the wall.
The current Federal debt
is $22 trillion, and over the term of President Trump, expenses will exceed revenue
by $866 billion per year based on current projections (see Box). The recently
proposed 2019 budget would increase this amount to over $1 trillion per year.
An individual has no
reference point for such amounts of money. So, let’s turn those amounts into a
personal example which parallels the current debate about funding the wall.
Suppose your uncle – let’s
call him Sam – has an income of $50,000 a year with a no cash reserves. He is
due for a $500 raise at the end of year. His current debt is $52,000 (104% of
his income). This means he has been borrowing money every year to cover several
thousand dollars of excess living expenses. Now, he wants to borrow a relative
small amount of additional money to purchase something that has no commercial
value – say a portrait of himself.
Suppose further that,
instead of the $500 raise, an anticipated market correction (10%) occurs, and
his actual earnings drop to $45,000. When that happens, he will have to borrow
$7,000 to stay even, for just for the first year. His total debt will jump to
120% of his reduced income.
Under these conditions, why
would Sam want to buy the portrait in the first place, and why would anyone
lend him any more money? Sam may soon need to default on his house mortgage, as
did many people in 2008, and move back home to live with his parents.
But, the big catastrophe
occurs when the next recession comes -- as many expect in near future. When the
GDP drops, the nation is caught in the same trap as Sam when his income fell by
10 percent. That is what happened to Greece. No cash, big expenses and no way
to borrow more, which would only have made the situation worse. The parallel,
with Sam moving back home, is significant reductions in social programs, such
as Medicare and Social Security, and other big budget areas, such as the
Department of Defense.
The economic stimulus required
to reverse the recession of 2008, was possible only because the national debt
had been reduced to manageable levels as a result of the “peace dividend”
during the Clinton years. The stimulus spending over the Obama era produced a
period of steady economic growth, but at the cost of a huge increase in the national
debt (104% of GDP) to a level that is not sustainable.
The current projections
are for economic growth to slow in the future. Without growth, similar to Sam’s
anticipated $500 raise, the ratio of debt to GDP increases wildly, as it did
over the G W Bush era as the result of annual budget deficits, the recession
and reduced revenue from a tax cut. Any reoccurrence of these events, all of
which are currently on the table, will crash the economy again. But, this time there
is no capacity for additional borrowing by the Government to stimulate a recovery
-- just as Sam has no capacity to come up with an extra $7,000 per year.
Building the wall doesn’t provide national security, it is
not an immigration policy, and it does not serve the body politic. It only
fulfills a campaign promise akin to Sam purchasing his portrait. Building the
wall is a distraction, while a real storm, the growing national debt, is
gathering on the political and economic horizon – a distraction that puts at risk everything that defines the American Way
of Life.
The real Uncle Sam would
never do this.
Data Sources:
Congressional Budget Office, Office of Management and Budget, compiled at https://fred.stlouisfed.org/ and https://www.usgovernmentspending.com/. See also http://www.usdebtclock.org/.
