The US Public Finances: We’re Screwed!

By Adrian Ineichen

In 2010, the US federal government will run a projected deficit of $1.556tr or about 10.8% of GDP. The total US federal public debt outstanding is currently $12.3tr or 85.3% of our GDP. Excluding federal intragovernmental holdings, but adding US state and local governments’ debt, we still owe $10.3tr or 70.9% of our GDP. These are impressive figures and it is unlikely that the ratios will change by magnitudes anytime soon.

Forget the oversimplified litany of US ideologues about “the” European welfare state for a moment. First, there is not “one” European welfare state, but a variety of competing models and philosophies. Second, yes, some European countries like Sweden have a larger welfare state than the US, but also one that works better (if you take the UN Human Development Index as a proxy, the US is not even in the top ten, and the trend is: We are falling behind) and one that they pay for (due to higher tax levels), whereas we just borrow – apparently without having any idea of how to pay it back.

We Americans live beyond our means. Not just physically (one fourth to one third of people in most US states are obese, trend: skyward), but also financially. The US would not even meet the EU’s Maastricht criteria (Debt-to-GDP not exceeding 60%; deficit-to-GDP not exceeding 3%). If America was to knock on Brussels’ doors and ask for entry, it would be rejected as financially irresponsible. The financial crisis and recession certainly contributed to that grim picture, but it would be misleading to attribute our mess to this alone. Structural imbalances have predated the recession. And the grim picture is likely to persist for years to come. We’re really screwed!

Now, at least our politicians start to consider the dire straits of our public finances. The talk is not even about reducing the debt (which implies making no more deficit and seems infeasible in the short/medium run), but about containing the deficit. However, in best US partisan politics manner, there have been prolonged debates whether to set up special commissions to think about the problem or not.

Part of Congress’ hitherto profligacy could be attributed to earmarking and pet project bridges to nowhere. Why not installing another “Special Paymaster” who this time would have the power to veto irresponsible federal spending decisions under certain conditions? The current institutional mechanisms in place favor short-termism and money politics, but not sustainable thinking and acting. When people like Charlie Rangel (ahem … the Chairman of the House Ways and Means Committee) are apparently unable to bring order into their personal financial affairs, how can one assume they are able to take care of our public finances?

Or, if some think that this would reduce democratic decision making, why not extending the term of the House from two to four years? So far, we have every other year a wave of bickering, partisanship and show politics, but no solutions. Increasing the term may not reduce accountability as much as it may enable our representatives to do their job and dedicate more of their time and energy on solving problems instead of polishing their image. This, by the way, would also help to save some $307m of campaign money for House seats, which we could use to pay off our debt.

It’s time to act to solve our problems and make sure our future generations have a chance to make a decent life. Our children are probably the biggest resource we have – but so far they have no one who lobbies for them.

References: For Further Stunning Information

Bureau of Economic Analysis (2010, January 29). GDP. http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Campaign Finance Institute (2006). The Cost of Winning a House and Senate Seat, 1986-2006. http://www.cfinst.org/data/pdf/VitalStats_t1.pdf

Center for Disease Control and Prevention (2009, November 20). U.S. Obesity Trends. http://www.cdc.gov/obesity/data/trends.html

New York Times (2010). US Federal Budget (Articles Collection). http://topics.nytimes.com/top/reference/timestopics/subjects/f/federal_budget_us/index.html?scp=2&sq=us%20budget&st=cse

Reuters (2010). Maastricht Criteria. http://glossary.reuters.com/index.php/Maastricht_Criteria

Treasury Direct (2010, February 10). The Debt to the Penny and Who Holds It. http://www.treasurydirect.gov/NP/BPDLogin?application=np

UNDP (2009). Human Development Report. http://hdr.undp.org/en/reports/global/hdr2009/

US Census Bureau (2009). 2007 State & Local Government Finance. http://www.census.gov/govs/estimate/

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