How much worse has the COVID-19 response made America’s debt crisis?
“The federal government is throwing the biggest party in history, and it will stick your children and grandchildren with the biggest bar tab,” write Antony Davies and James R. Harrigan in Cooperation & Coercion: How Busybodies Became Busybullies and What that Means for Economics and Politics.
“In 2019 the amount the federal government officially owed passed $22 trillion,” they write. “Of this, the government had borrowed more than $16 trillion from private individuals, companies, and foreign governments. It borrowed another $5.9 trillion from federal agencies and government programs that have run surprises - largely from the Social Security trust fund.”
Davies and Harrigan wrote this book in 2019, and it was published in March 2020 -- prior to the COVID-19-induced economic lockdown. Since that time, the president and Congress enacted a $2.9 trillion “stimulus package,” economic activity plunged in the U.S., and the deficit soared past $25 trillion.
Further, as of the publication of this article, the U.S. House has passed a bill to spend another $3 trillion on an additional “stimulus” bill.
In short order, the “biggest bar tab” that Davies and Harrigan wrote about has become even bigger.
But the problem is even larger than $25 trillion (or $28 trillion, should the government enact the new “stimulus” bill).
As Davies and Harrigan write, we must also add “unfunded obligations” to the Social Security program, or, “how much the government has promised but will not be able to pay.”
“As of 2017, the estimates ranged from around $50 trillion to more than $200 trillion,” they write. “Even if we take a conservative estimate of $80 trillion, that number matches the entire output of the entire planet in 2017.”
The co-authors write that we are running out of options to deal with these massive deficits.
In terms of “balanced budgets,” they write, “If the economy continued to grow at four percent per year and the federal government held spending constant for five years -- not even adjusting for inflation -- then within those five years the government would have its first balanced budget since the Eisenhower administration.”
But, again, Davies and Harrigan wrote these words pre-COVID-19, when the economy was, in fact, growing at four percent. And the “stimulus” spending that has already occurred, combined with that which might occur in the future, has ended the notion of government holding spending constant.
That’s to say nothing of inflation, especially that fueled by the massive influx of spending.
In short, the problem was bad before COVID-19. How about now?
Freedom Media Network founder Curt Mercadante asked Davies and Harrigan this very question in a recent interview (watch video above to learn more).
“Just off the top of my head, I would say something like this: In thirty, forty years, the U.S. looks fine,” said Davies. “The question is, what do we look like in ten, fifteen, twenty years? There's going to be a transition. And, I suspect there are many ways this can play out. One way that I suspect it will play out, is that the government will end up issuing a new currency. And interestingly, there was noise of that in this last stimulus bill. There was an amendment proposed that was taken out subsequently from the final bill. But, the amendment was to begin investigating, setting up a national cyber currency, controlled by the government.”
He added, “But, something like that will be the gateway for a massive inflation. There'll be a one shot deal to monetize the level of government spending.”
Harrigan expressed concern about the “medium term.”
“I agree with the fact that in forty, fifty years, we're all fine here. I think we've got short term pain, medium term uncertainty and long term we're pretty good,” he said. “In the medium term, if we have a real shock, a convulsion of the monetary system, the entire country could spin apart. And, this is the thing that people don't really want to think about. They think the United States will always be exactly as it was, as they experienced it. But, world history should tell you that that's an unreasonable expectation. That things do, in fact, change and change significantly over time.”
Harrigan thinks “we face an existential threat with our debt problem, as it now exists,” but
expressed confidence in the “productive capacity” of the American people.
“The existential threat is for the Federal United States government. It's really not an existential threat for the people,” he said. “The productive capacity of the United States remains before, during, and after whatever's going to happen. Unlike Europe, post-war Europe, we're in pretty good shape here. We've just been living well beyond our means for a long time. And we've been spinning more and more apart generationally. How those two things come into focus later will determine what we're up against.”
You can watch Mercadante’s full discussion with Davies and Harrigan by clicking here.