While Washington, and the press, have been in an uproar over the government shutdown and the debt-limit negotiations, the debt itself has continued to climb. And that inexorable tide is going to cost us, eventually. As economist Herbert Stein once observed, something that can’t go on forever, won’t. And this can’t go on forever. From this there are two lessons.
How bad has it gotten? In the past two years, the debt limit has grown twice as much as the economy. Can that go on forever? I doubt it very much.
As Niall Ferguson notes, while politicians crow that the deficit has dropped — from super-enormous to merely really, really gigantic — every year that we’re in deficit adds to the debt. And the long-term trends are bad: “A very striking feature of the latest Congressional Budget Office report is how much worse it is than last year’s. A year ago, the CBO’s extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year’s long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year.