Before converting to Christianity Augustine of Hippo lived a life of sin. And, as he tells us in his Confessions, he enjoyed his sins so much that as a young man he prayed: “Lord, make me (sexually) pure – but not yet!” The “but not yet” part of St. Augustine’s prayer is an ironic reminder of the insincere posture of our politicians as they preach for fiscal prudence, “but not yet.”
In fiscal year 2020, the federal budget deficit totaled 3.1 trillion. Three trillion is 3 with 12 zeros and looks like this: 3,000,000,000,000. This is more than triple the deficit recorded in fiscal year 2019. The 2020 budget deficit represented 14.9 percent of the nation’s gross domestic product (GDP), up from 4.6 percent and 3.8 percent in 2019 and 2018 respectively. As a percentage of GDP this was the largest federal budget deficit since 1945. Yes, some of this amount resulted from the economic effects of the coronavirus pandemic and our legislative response to the pandemic. But it is also true that this deficit will impose economic hardships in the years to come. How are we going to repay this deficit? We should be concerned, but apparently, not yet.
A short newspaper column is not the ideal forum for a mind-numbing economic discussion, but a couple of definitions may be helpful. This federal budget deficit is the accumulated difference between the income government takes in, mainly thru taxes, and what it spends. That is, the deficit represents the total our government owes. This debt is owed to both domestic and foreign investors. Every dollar the government spends in excess of what it takes in adds to the federal debt.
Perhaps when it comes to thinking about the future economic and social impact of our budget deficit, we also take solace in St. Augustine’s claim that the future does not exist, ‘the future is not here yet, and if it is not here yet, it does not exist.’ This argument was an attack on witches and fortune tellers, but St. Augustine must also have had a good sense of humor. In dealing with the question; What was God doing before He created the world? Augustine claimed that, not him, but somebody else had said that God was ‘preparing hell for people who ask difficult questions.’ I suppose people like this writer.
For us, as individuals, spending more than our income will eventually cause us to go bankrupt. But, does this hold true for the United States government? Some policymakers choose to ignore the problem of spending more than we take in simply because they will not be around to deal with the economic consequences. Besides, spending is more fun if one does not have to worry about repayment.
The idea that the size of government debt does not matter is counterintuitive to us. As individuals we worry about how much we owe. Yet, no one really knows at what level the accumulated government debt could begin to hurt the economy. And, some economists have made the argument that the level of accumulated debt does not matter. This Modern Monetary Theory (MMT) argues that since the U.S. government can always create money to repay loans, there is no real constraint on borrowing. That is, in a low interest rate environment, as we have today, we need not be concerned about the amount of government borrowing or the size of the accumulated national debt.
This “free lunch” idea is very appealing, and the size of our government debt is no longer in the headlines or a key political issue. When was the last time you heard a politician argue forcefully for a reduction of our national debt? However, there is a nightmare scenario; as our debt grows the global investors who have loaned us the money to finance U.S expenditures may become concerned about our ability to repay and seek repayment.
Still, many policymakers do not see deficit spending as a problem requiring their attention. For them, the debt may someday be a problem, but not yet.
Dr. Azel’s latest book is “Liberty for Beginners.”
“The opinions published herein are the sole responsibility of its author”.