We continue our series on the four leadership power sources of population, wealth, military strength, and foreign reach. We are looking at how well the US is managing its power sources; in particular, the role debt plays on its long-term leadership position.
Both Democrats and Republicans have escalated the debt in the last two decades. George Bush increased debt to support tax cuts and wars in the Middle East. Barack Obama ran up debt during the Great Recession. And Donald Trump increased debt to fund a tax cut in 2018. Now, with the pandemic, debt is being used to prop-up the economy. Even before the pandemic, at the beginning of 2019, Congress only had only 11% of tax revenues to spend at its discretion—the rest was tied up in interest payments and entitlements. This is projected to decline in the future until there is no discretion at all. But perhaps most disturbing aspect of US debt is not its size ($26T and counting) but the indifference to it. In 2011, six senators, collectively known as The Gang of Six, laid out a plan to curtail this trajectory but were unable to garner support for reforms.
In the context of leadership power, debt reduces wealth, which weakens a society’s power. History is replete with countries that went bankrupt or fell out of power because they spent too much (usually on military campaigns they couldn’t afford). While the US has had bona fide reasons to borrow, it has never quite grasped the second half of this process—the need to pay it back.
Children aren’t voters so politicians feel less need to cater to them the way they do adult constituents. In the current Covid environment, borrowing is probably inescapable. However, one can hope that America finds the discipline to pay it back so the effects of this disease don’t last throughout our children’s lives as well.
Reference:
Eugene Steuerle, “The future of federal spending has already been decided,” Washington Post, 15 Sep 2019, B2.
Ryan Rosso, “Details on the “Gang of Six” Plan, Tax Foundation, 21 Jul 2011, accessed from https://taxfoundation.org/details-gang-six-plan/
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