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The National Debt—Going, Going, Gone? Part 1 (of 2 articles)

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Stephen R. Rolandi
August 20, 2020

Last August, I wrote an article for PA Times entitled, “Time To Get Serious about the United States National Debt.” In that article, I traced the history of the origins of the federal budget deficits and national debt since the beginning of our national government in 1789. Many people are quite surprised to learn that when Washington was inaugurated as President on the steps of Federal Hall in New York City, our total national debt was approximately $75 million, which was whittled down to nearly zero by the time of Andrew Jackson’s second term in 1836.

Economists and analysts look at a country’s national debt in relation to its Gross Domestic Product (GDP) to get a good measure of a country’s level of indebtedness, by calculating a debt-to-GDP ratio, as a percentage number. In just nearly the last four years, the United States’ debt-to-GDP ratio has exploded as follows:

YEARTOTAL DEBTGDPRATIO
2016 (final year of Obama Presidency)$ 19.6 T$ 18.6 T          105.30%
2019 (August 2019 – Trump Presidency, Pre-Covid 19)$ 22.5 T           $ 21.3 T105.60%
2020 Current As of 8/20/2020* $ 26.7 T           $ 19.5 T         136.90%
2024 Projected      $ 45.8 T           $ 26.4 T         173.40%

The current debt estimate reflects the effect of current federal budget deficits and the Trump tax cut legislation passed by Congress in 2018 plus the amount of the stimulus program appropriations proposed by the President and passed by Congress in response to the COVID-19 pandemic earlier this spring and summer.

In addition, what drives the debt-to-GDP ratio higher has been the contraction in the national economy and steep decline in the growth rate due to the corona virus pandemic in the second quarter of this year. Congress is not expected to pass another stimulus package until later this year, assuming the White House and Congressional leadership can work out their differences; but that stimulus bill will likely add at least another $ 1 trillion or so to the national debt.

Depending on which economist’s views you accept, a recovery is expected to occur sometime next year (most optimistic) or later in the decade (least optimistic). Out-year projections will likely reflect not only the state of the economy, but also if the corona virus can be brought under control with a safe and reliable vaccine. Clearly, the Covid-19 virus pandemic and outlook for the national economy are tied together, not to mention what government policies may be proposed following our 2020 national elections.

As citizens, students of public administration, practitioners and scholars, we need to be concerned about this alarming increase in our national debt that has occurred in the last several months. To make the matter personal, the current national debt load works out to just over $ 80,000 per person in the United States.

Lawmakers need to take this theme into account when considering additional spending proposals to revive the economy. One highly respected credit rating agency, Fitch Investors Service, recently warned that the United States could lose its AAA sovereign credit rating if the United States government debt is not managed effectively over the coming years. Similar non-partisan “good government” fiscal watchdog organizations, such as the Peter G. Peterson Foundation, have made similar warnings in recent months.

 Some may say, “Why worry?” It is true, inflation (as measured by the Consumer Price Index and other indicators) is relatively low, along with interest rates (right now, the United States government can currently borrow money for 30 years at less than 1.5%. So, the argument goes, even though the amount of debt is high, it is relatively easy to service. The debt-to-GDP ratio is about three times higher than it was in 1980, when interest rates on government-backed bonds were 11%.

But what this argument ignores is the fact that a prolonged economic depression (or severe recession) and a sudden increase in inflation and interest rates can change the situation quicker than many expect. On the bright side, the economic power of the United States can be clearly helpful when it comes to debt.

Some countries have had very high debt levels in recent years, such as Greece, Japan, Venezuela and others.

We need to be concerned as policymakers and analysts with bringing the Covid-19 virus pandemic under control, and re-launching the national economy. For now, the United States debt is probably not an immediate concern, but it could become one, and the consequences would be dire.

As a nation, we are edging somewhat closer to that scenario. Time is growing short.

This is a problem that simply will not and cannot go away, and will confront the next President and Congress. It will be interesting to see if both major party candidates will address this issue in the fall campaign.

In my next article, I will attempt to lay out some possible solutions to this problem, which I believe are doable, if the political will is there to address it.


Author: Stephen R. Rolandi retired in 2015 after serving with the State and City of New York. He holds BA and MPA degrees from New York University, and studied law at Brooklyn Law School. He is an adjunct professor of public administration at John Jay College of Criminal Justice (CUNY) and Pace University, Dyson College of Arts and Science, and teaches courses in public finance, management, and public policy. He is President Emeritus of ASPA’s New York Metropolitan Chapter and served several terms on ASPA’s National Council, in addition to several board positions with other organizations in New York and Washington, DC. You can reach him at: [email protected] or [email protected].

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