A telling point of America’s economy is that the amount of stakeholders in our national debt is maybe higher than ever. Obviously, the recent Bank and Auto Bailouts, in addition to an increase in healthcare subsidies to occur, underscore this. When this combines with a large Defense budget, farm and other business subsidies, plus low corporate taxes due to loopholes, it’s obvious many have a vested interest in our debt. In addition, if more economic areas are added as stakeholders in the future, this heightens the dilemma.
America’s total debt, and the fact it’s basically doubled in ten years, is no abstraction. The stress created by it negatively affects our critical finance and government services. In addition, America’s undermined by a lack of accountability major debt stakeholders sometimes perpetuate. The serious nature of our economic situation is shown by the record low interest rates we’ve had several years. Although low interest rates hurt savers, rates are kept low to stimulate a weak economy, and make our QE Policy of buying back our own debt cheaper.
Ironically, our total debt situation is so severe some politicians now look to cutting Social Security as an answer. The odd part about this is that our nation’s popular social insurance retirement program is mostly solvent—and fixable.
America’s debt dynamic compounds a web of political-economic intrigue. As many warn, America may face another finance meltdown due to the high amount of risk the finance sector still takes on. Tellingly, many prudent voices are speaking up, saying that finance regulation erected after the crash of 2008 doesn’t really address lowering economic risk and increasing solvency. If another downturn occurs soon, the government may find it harder to restart our economy.
Although our current situation, with a high debt to GDP ratio, seems similar to post-WWII America, there are major differences between now and then. These differences highlight that it’ll be harder to achieve the economic security we had then.
This is because in the late 1940s, fewer areas of the economy had a stake in the continuance of high debt. Compounding this is how US tax policy, through the evolution of corporate and individual tax loopholes, has reduced taxes. The high taxes we had after WWII reduced our debt.
As is well known, modern politicians realize that high taxes are radically unpopular.
Due to the evolution of our political dynamic, America may have recently entered a kind of economic no-man’s land where left and right mostly blame each other for destabilizing debt. In reality both sides are at fault. Over time, the search for rational tax policies that align with a rationally sized government has almost been given up on. In line with this, the popularization of a political media that borders at times on entertainment has made most rational economic talk unpopular.
It’s no coincidence that the subsidization of large business and increase in debt has coincided with the media explosion that occurred after the repeal of The Fairness Doctrine in 1987. In this take no prisoners media environment, an Us vs. Them mindset leads to ratings duels that result in timeworn political-economic clichés being repeated endlessly.
As many claim, the incessant use of these clichés often fails to address many current economic variables.
Although not admitted easily, many politicians now favor policies in the short term that either add to America’s total debt, or don’t do much to lower it long-term. An exception to this was the relatively modest cuts set in place by the Sequester.
Unfortunately, the economic paradox America now faces is that making budget cuts at this particular time may not really help our fiscal problems long-term. This is because politicians have become adept at adding to America’s total debt even while they make specific cuts at certain times.
Perhaps the biggest economic problem that America now faces is philosophical. If we continue to directly and indirectly subsidize many areas of the business economy as we have, it’ll be hard to create a stable America with a lower debt to GDP ratio. Although economic areas such as healthcare and defense are more vital than others, Americans need to realize that subsidizing and assisting many non-essential businesses is taking a toll.
In line with this, if a viable retirement program like Social Security is at future risk because politicians are afraid to make the tweaks needed to fix it long-term, it shows we may indeed be entering a kind of economic no-man’s land. In this new era, it seems that many politicians are starting to work more for themselves and the industries they favor, and less for the average Americans they represent.