The 5 Real Reasons America Could Go Bankrupt
In the next few decades, America risks going bankrupt. The trajectory of the national debt has only been upward regardless of who is president, and there are five clear reasons why.
1) People haven’t felt the pain: What pain have Americans felt because of our 3 trillion-dollar-plus national deficit and our skyrocketing debt, which is almost 28 trillion dollars at this point? We’re still the world’s reserve currency. We’re still able to borrow the money to pay our bills. We’re able to print trillions of dollars in stimulus money and the inflation hasn’t caught up with us yet. We’re even still arguing about whether we can afford to fund cartoonishly expensive new programs like the Green New Deal, so why would the American people be alarmed? In their view, we’ve been talking about this for decades while nothing bad has ever happened, so what’s to worry about? It’s kind of like someone who smokes three packs of cigarettes a day. They can see the warnings on the label and maybe they cough a little more now, but they haven’t gotten lung cancer yet, so what’s to worry about?
2) There are almost no political incentives to cut spending: The entire philosophy of the Democrat Party revolves around big government and taking money from people that don’t vote for them and giving it to groups that may vote for them in exchange for the money, so cutting spending is a non-starter for them. There is a constituency in the GOP for fiscal responsibility, but it exists more theoretically than in the real world. There’s almost no Republican support for cutting any of the biggest budget items like Social Security, Medicare, and the military. In other words, there is no base of support for a responsible politician that wants to do more than give lip service to the idea that we should cut spending. Democrats won’t advocate for it in the first place and Republicans that make a serious attempt will be deluged with negative advertising and abandoned by their own voters.
3) There are huge political incentives to increase spending: Want to get good press if you’re a politician? Bring some pork home to your district. Advocate for a new government program. Offer to send people checks. Push through a trillion-dollar spending bill and repeat as often as possible. It literally doesn’t matter if the money is spent well or the programs work because you’ll still be praised. Meanwhile, try cutting ANYTHING in the federal budget. Whoever is getting that money will squeal like a pig about how you’re ruining them. They’ll hire lobbyists, do PR campaigns, call in every favor they have, and what do you know… your attempt to cut that program will fail. Government spending is like a spigot that only turns one way. Nothing is easier than to turn it on, but once you do, you can never turn it off.
4) The middle class isn’t paying their fair share: I’m a believer in small government and low taxes on the middle class, but that is not what we have in America. We have big government and low taxes on the middle class. In fact, America has the most progressive tax code in the Western world, meaning that rich Americans are paying too much, and the middle class isn’t paying anywhere close to enough. The top 25% of taxpayers pay 86% of all income taxes. Meanwhile, the average person receives hundreds of thousands more in Social Security and Medicare benefits than they pay in. If middle-class Americans had to actually pay enough to keep programs like Medicare and Social Security on an even keel and knew their taxes would go up every time a new program was passed, you’d be amazed at how interested the middle-class would become in cutting spending. Alas, that is not the world we live in, nor is it likely to be anytime soon.
5) By the time the problem is obvious to everyone, it will be too late to fix: Niccolo Machiavelli was a brilliant man and this is one of his best quotes:
“And what physicians say about disease is applicable here: that at the beginning a disease is easy to cure but difficult to diagnose; but as time passes, not having been treated or recognized at the outset, it becomes easy to diagnose but difficult to cure. The same thing occurs in affairs of state; for by recognizing from afar the diseases that are spreading in the state (which is a gift given only to a prudent ruler), they can be cured quickly; but when they are not recognized and are left to grow to the extent that everyone recognizes them, there is no longer any cure.”
At some point, the consequences of our overspending will become so obvious that everyone can see them. America will no longer be the world’s reserve currency. Investors will stop lending America money at low-interest rates. The interest payments on the debt will become the biggest expenses in our budget. The value of the dollar will plunge. Inflation will take off like a rocket. The government will have difficulty paying people to do things anymore because inflation will make the payments they’re offering nearly worthless. Government payments for programs will be cut, stopped or inflation will make them much smaller than they used to be. Odds are, all of these things are going to happen and by the time they do, the problem will be nearly insurmountable. We’re not a tiny country like Greece, so the rest of the world won’t be able to bail us out and they certainly won’t throw good money after bad. We’ll drop off into a debt-driven depression and then we’ll have to see how bad it gets from there. We could see anything from a decades-long worldwide depression to the country splitting up and there won’t be much we can do about it.
Are these things fated to happen? Well, in Charles Dickens’ “A Christmas Carol,” there was a relevant conversation between Scrooge and a ghost:
“Are these the shadows of the things that Will be, or are they shadows of the things that May be only?” Still, the Ghost pointed downward to the grave by which it stood. “Men’s courses will foreshadow certain ends, to which, if persevered in, they must lead,” said Scrooge.
These are still fixable problems, although we have already waited so long, there are no longer minimally painful ways to fix them. Additionally, it would require a major attitude shift in America to do the politically unpopular things that could make a real dent in the problem. Things like dramatically raising taxes on the rich and middle class. By finding ways to cut Social Security, Medicare, and defense. By getting rid of baseline budgeting. By refusing to add new government programs and by cutting old ones. By insisting on cutting the budget until we run surpluses instead of deficits every year. That would be a good start. Unfortunately, in the “me first” world we live in today, it doesn’t seem politically possible to ask the majority of Americans to accept much more pain today so future generations can grow up in a fiscally sound nation. So, God help us all.
John Hawkins is the author of 101 Things All Young Adults Should Know.
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