Editor’s note: This article was edited after publication to clarify that it is the Peter G. Peterson Foundation that holds financial summits.
In an earlier piece in The Hill, I emphasized the imperative, laid down in the Constitution itself, of meeting America’s debt obligations and underscored the damaging consequences of default — or even of threatening to use default to exert political leverage. Both could have catastrophic effects on our economy, our society and public confidence in government as a whole. Now let’s also address the future: how we must take on the difficult but critically important challenge of curbing and then reversing the debt we have been accumulating.
The current buildup of federal debt is unlike any in American history — not just based on its enormous size but also because, for the first time in our recent history, the debt is not likely to be paid down during the political lifetime of the leadership generations incurring it and many of their contemporaries.
Why does this matter? Because, as the result of this buildup, coming generations of leaders — and the American people — will face the challenge of either paying the debt down or paying huge amounts of interest on the massive and rising unpaid amounts. If the latter, the larger sums of money required by our government to pay interest on ballooning debt will deprive future generations of Americans of resources required for government services to address critical health needs, support benefits for an aging population, meet education needs of younger Americans, finance vital infrastructure and other programs, overcome future financial crises, and defend our nation against various foreign threats.
Incurring significant debt to pay for wars has been relatively common throughout American history, beginning with the Revolution. But in all cases, significant portions of that debt were paid down quickly after the war ended. For example, during World War II, federal debt skyrocketed to 119 percent of gross domestic product in 1946, but quickly dropped to 92 percent in 1948.
And large amounts of debt have been accumulated from time to time for domestic emergencies. For instance, spending to stem the 2008 financial crisis and federal support to address the urgent needs of the COVID pandemic — although more rigorous monitoring of the allocation and use of such funds would have curbed spending and, thus, the amount of increase in the federal debt.
Moreover, for certain long-term national needs, such as infrastructure and advanced research and technology development, borrowing is necessary to produce broad benefits, e.g., the Eisenhower highway program, DARPA and the space program.
In past eras, when both political parties concluded that debt had become excessive, legislative compromises were reached to pay it down. In the late 1980s and early 1990s, for example, the nation’s debt quadrupled, largely due to big tax cuts. But then, starting in 1992, debt accumulation was reversed. During the remainder of the decade, based on bipartisan legislation, it dropped from 22 percent of GDP to 18 percent — the lowest level since 1966. Between 1998 and 2000, America experienced one of the most dramatic three-year pay downs in its history. The U.S. had several years of balanced budgets under the Clinton administration.
All this now seems a distant memory.
In recent decades, debt has risen dramatically. In part, this has been COVID-related and in part, due to the need to support Ukraine. However, much of it has been based on non-critical spending programs and tax cuts that emerged primarily from various political pressures, efforts of dubious necessity to boost financial markets, and political deals by both parties, rather than genuinely urgent or compelling national needs.
And there is little chance that such debt will be paid off during the political lifetimes of those now engaged in incurring it. The Biden administration’s proposed budget, if it were to become law (which appears unlikely, an outlook that it shares with the Republican plan), has the goal of reducing total deficits over the next 10 years from $20 trillion, a figure predicted based on spending and taxes under current law, to combined deficits totaling $17 trillion. That would cause the deficit to drop from 6.8 percent of GDP to 5.1 percent over that period. But even if there were such a significant drop, federal debt would likely still rise — from the 102 percent of GDP (now projected by the end of 2024) to 106.3 percent in 2027. That figure would still be above the level two years after the end of World War II.
Further projections show the deficit rising to 110 percent in 2033. This is because federal spending — despite budget cuts of such magnitudes — would still mean that outlays would likely rise more than federal revenue and GDP growth.
This leaves to future generations tough choices on spending cuts and/or revenue increases to reduce the debt, or on ways to pay the growing interest bill. And the longer the problem lasts, the harder such choices will be and the more dangerous the financial outlook. World history is littered with great nations whose financial and banking underpinnings were badly harmed by large — and rising — debt. A vivid and frightening example is the collapse of the once great Moghul Empire.
The answers to this problem are complicated. We cannot expect to return to the halcyon environment of the 1950s. But we can return to greater budget discipline and responsibility.
The next step should be a clear-eyed assessment of the costs and benefits of a variety of government programs — many of them worthy, but all competing for funds and many enjoying powerful and competing constituencies — and then deciding whether and how to institute appropriately bold measures to cut costs or raise revenues to pay for them. Legislators must recognize that it will be nearly impossible to grow our way out of this problem and there are no painless fixes — but also that, absent bolder measures, the long-term pains and the financial, social and national security risks to our country will be much greater in years to come.
Second, a return to constructive bipartisanship is a prerequisite to make this work. The Peter G. Peterson Foundation, for example, has put forward ideas for bipartisan progress at its annual summits.
A third, and less discussed, dimension is also critical: constructive inter-generational engagement in Congress and throughout the country. This requires bringing together the current leaders of the Senate and House and adding new participants: leaders of younger members of both parties in both houses and outside groups of young people. They deserve a voice; their generation, and the country under their future leadership, will suffer from inaction or insufficient action in this decade. If we fail to take remedial action, this increasingly serious problem will fall into their laps.
On the optimistic side, their generation and the country can benefit from bold corrective measures taken now and for the rest of this decade — recognizing this has to be a multi-year process. Success would give them and future generations the chance to govern and live their lives without this huge millstone around their necks.
Robert Hormats (@BobHormats) is former under secretary of State for economic growth, energy and the environment and currently a visiting lecturer at Yale University.