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Matt Slocum

The economy is booming, and yet last year’s deficit was 6.3 percent of gross domestic product. If you <a href="https://www.wsj.com/economy/the-federal-deficit-is-even-bigger-than-it-looks-6bc8a070" target=_blank>correct for some odd accounting</a> surrounding the Biden administration’s decision to forgive billions of dollars’ worth of student loans, it was more like <a href="https://manhattan.institute/article/americans-shrug-off-historic-debt-surge" target=_blank>7.7 percent</a>.

The unemployment rate is 3.8 percent, yet this year the federal government will spend <a href="https://www.cbo.gov/publication/59946" target=_blank>$1.6 trillion more than it collects in taxes</a>. About $870 billion of this is interest we’re paying on money we already borrowed.

We are fecklessly squandering what might be our last opportunity to get the government’s finances on a sustainable footing in an orderly manner that will minimize the pain. And I haven’t even told you the half of it.

Real gross domestic product <a href="https://fred.stlouisfed.org/series/A191RL1A225NBEA" target=_blank>grew 2.5 percent last year</a>, but the national debt grew faster, rising to 97.3 percent of GDP from 96.9 percent in 2022. Just five years ago, it was 79.2 percent of GDP. Next year, it’s expected to hit 99 percent. By 2034, the Congressional Budget Office thinks it will be 116 percent, and rising.

The Social Security Trust Fund will be exhausted in 2034 and, in theory, the statute requires that benefits be cut by about 25 percent to balance the books. In practice, Congress will be under fierce pressure to prevent such cuts. But because CBO projections are based on “current law,” 116 percent is far too optimistic. We should add <a href="https://www.ssa.gov/oact/TR/2023/tr2023.pdf" target=_blank>at least 1 percent of GDP</a> to the number in 2034, and another 1 percent every year thereafter.

This is not all. Medicare’s trust fund will be exhausted three years sooner, in 2031, and although the CBO likewise assumes that hospital payments will be cut, we shouldn’t bet on that happening. Better make it an extra 1.5 percent of GDP that we’ll need to find, somewhere.

And, of course, there’s an even more heroic assumption underlying all these numbers: that we won’t experience another crisis that we’ll want to spend a bunch of borrowed money on. As the 2008-2009 financial crisis and the pandemic revealed, this is hardly a safe bet.

These numbers are not yet unmanageable; America has faced worse. In 1945, the deficit was 21 percent of GDP, and the national debt held by the public topped 100 percent. By 1957, the budget was in surplus, and the debt-to-GDP ratio had been cut in half. And we don’t need to get all the way to surplus; if we could get our budget deficit down to, say, 1 percent of GDP, inflation and economic growth would gradually erode the debt to something manageable.

But this will be harder for us than it was for our forebears in the mid-20th century. They were a young and growing country, while we are an aging one, with a lot of expensive obligations to our seniors. They enjoyed expanding opportunities for trade and investment in a world that was recovering from war; we face increasing protectionist pressures — both at home and abroad.

Most important, they were serious and we are not.

In the years following the financial crisis, economists and pundits debated whether the government was spending too much borrowed money, or too little. The proponents of more stimulus argued that the austerity caucus had mired the economy well below its capacity, inflicting needless suffering on the under- and unemployed. We should run deficits, they argued, while money is cheap, and then pay them down when the economy improves.

They had a point; unemployment is one of the worst things that can happen to people in modern society, and the damage often endures long after they’ve found new jobs. Preventing unemployment, or at least shortening it, makes people way better off and, theoretically, it can permanently increase the economy’s productive capacity.

The austerity-mongers’ best counterargument was that we weren’t spending the money in theory, or in 1945, when an ethos of fiscal responsibility prevailed. We were spending it in the 21st century, when that ethos had collapsed, so there was a considerable chance that when the good times finally rolled around, no politician would willingly undertake the sacrifices necessary to get the budget back in shape. Instead, the debt would accumulate until some crisis forced policymakers to do something — and then people would suffer even more than they did from the labor market slack.

We are not having such a crisis now. But we are nevertheless doing everything we would do if we wanted to have a crisis: running up debt, not on productive investments in the future but on ordinary government operating expenses. When we do trim spending or raise taxes, it is generally to fund something new — such as Obamacare or the current administration’s green energy agenda — rather than to ensure that what we’re already doing is fiscally sustainable. This means that when we need to restore some semblance of balance, we’ll already have used up the most politically palatable options.

If we can’t balance our books now, when everything is going well, how will we manage it later, when our growing debt might push up interest rates, crowding out private investment and worsening the budget math? What will we do if, God forbid, another crisis needs to be finessed with borrowed money but no one will lend to us at reasonable rates? Almost no one in government is even asking these questions.

Our national debt is equal to the total of everything we Americans produce in a year, and <a href="https://www.washingtonpost.com/elections/candidates/joe-biden-2024/" target="_blank" class="contextual_link">President Biden</a> isn’t talking about fiscal sanity; he’s talking about <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2024/03/25/fact-sheet-the-biden-harris-administration-announces-month-of-action-on-care-with-new-actions-to-support-small-businesses/#:~:text=The%20Fiscal%20Year%202025%20Budget,income%20families%20paying%20nothing%20at" target="_blank">massive child-care subsidies</a>.

The interest on our national debt is equal to 2.4 percent of GDP, and <a href="https://www.washingtonpost.com/donald-trump/" target="_blank" class="contextual_link">Donald Trump</a> ‘s advisers are <a href="https://www.washingtonpost.com/business/2024/01/12/trump-tax-cuts-2024/" target=_blank>floating the possibility of more tax cuts</a>, which presumably would be enacted, as the last ones were, without cutting enough spending to pay for them.

If this is the best Americans can do in the best of times, then we are asking for disaster when things, inevitably, get worse.

The Up Side of Down: Why Failing Well Is the Key to Success

Megan McArdle is a Washington Post columnist and the author of "<a href="https://www.amazon.com/gp/product/0143126369/ref=as_li_qf_asin_il_tl?ie=UTF8&tag=thewaspos09-20&creative=9325&linkCode=as2&creativeASIN=0143126369&linkId=81f062af99d4715d7ed5ca96b18dc573">The Up Side of Down: Why Failing Well Is the Key to Success</a>."

Megan McArdle

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In flush times, the U.S. is foolish not to better manage its budget

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