John Norton is a University of Dallas senior, and his article first appeared on GenWhyPress.com.
“We must tackle our national debt today, for the future of our grandchildren depends on it!” This slogan speaks to a popular issue today for Americans on both sides of the political aisle. Most agree the national debt is spiraling out of control after a decade of major budget deficits. The real issue among conservatives and liberals is how to pay it down. But should that be the real issue?
Simply put, Americans today have attached a negative connotation to debt, particularly to the over $15 trillion debt carried by the United States government. But before arguing how to pay down the debt, we must ask how much of this debt really needs to be repaid.
The U.S. national debt is currently around 100 percent of the Gross Domestic Product. The optimum level of national debt as a percentage of GDP for a country varies greatly (Japan’s national debt is over 200 percent of GDP), with no universal ideal level set by any governmental or international organization. In order to determine how much of the national debt needs to be repaid, one needs to find out the sustainability level of a country’s debt.
This sustainability varies greatly depending on the development of a country’s economy, creditors’ default expectations and the stability of a nation’s currency. The United States scores very well in all these areas. Even while American citizens watch their politicians threaten each other with default, and Standard & Poor takes away the U.S.’ AAA rating, the U.S. dollar remains the safest investment for the entire world.
Furthermore, one must look at history to understand America’s “debt problem.” A study of public finance proves that in times of recession, deficits occur due to increased welfare and stimulus spending and decreased tax revenue. During times of economic growth, like the 1990s, surpluses are more common as revenues increase and government spending decreases.
These trends in government budget management are normal and necessary to maintain a functioning economy. Falling in line with these trends for the most part, America’s current debt-ballooning problem results from a combination of major stimulus spending, a weak banking sector, continued trade deficits and expensive military campaigns.
These conditions, with the exception of military expenditures, are cyclical problems resulting from a weak economy struggling to overcome the Great Recession. While America’s national debt is growing steadily and needs to be addressed, the extent of the problem is overblown by the media. Regardless of one’s opinions on the effectiveness of recessionary spending, the United States followed the typical pattern of economic and fiscal policy during times of recession, and an increase in debt accumulation was expected.
While America needs to address its climbing debt, its impressive economic status in the world dictates a level of sustainability far greater than that of most economies. I believe this level to be much closer to America’s current national debt as a percentage of GDP than many think, a level attainable through a few years of fiscal austerity as proved possible by the surpluses of the 1990s.