Love Regulation or Hate It, the National Debt Is Not Your Friend

barbariansBy the end of the reign of Trajan, in what would later be called AD 117, the impending decline of the Roman Empire could be seen by anyone who looked closely at the coins. In the days of Nero, a half-century before, more than nine parts in ten of a denarius was silver. When Trajan died the ratio was approaching eight in ten, and by the time Septimus Severus gained power in the late second century, it was scarcely more than five in ten.

The Roman state became ever more elaborate, and it incurred ever-mounting administrative, redistributive, and military expenses. Spending less was hard, as was collecting more, so the government on the whole did neither; it just debased the currency. “The inflation that would inevitably follow would tax the future to pay for the present,” writes Joseph Tainter in The Collapse of Complex Societies; “but the future could not protest.”

The United States is $22 trillion in debt. It is set to add another $12.4 trillion over the next ten years. That amounts to a deficit of around $1 trillion a year, or $2.5 billion a day. The country now sustains, as a matter of course, an annual deficit of a size formerly seen only during an economic slump or a major war. It is the de facto policy of the federal government to borrow 20 cents of every dollar it spends.

More than seven percent of the federal budget—$320 billion—goes to paying interest on debt. The annual interest bill is forecast to hit $650 billion five years from now, and $1 trillion ten years from now. In the next few years spending on interest will surpass spending on the military. And these calculations hold only if no recession occurs and interest rates remain low.

One can justify borrowing money to build something—say, a bridge—if the completed product will in time confer a benefit greater than the cost of the debt. That, however, is not the sort of debt the federal government is shouldering. It is borrowing for current consumption. In 1969 20 percent of the federal budget went to entitlement programs. Today more than half does.

A typical senior receives 25 percent more money from entitlement programs than he paid, during his working years, in pertinent taxes. This money is not an investment return. Social Security and Medicare are pay-as-you-go schemes: current workers pay current seniors’ benefits. Because life expectancy is rising, the fertility rate is falling, and benefits are not constrained by contributions, the total unfunded liability for Social Security and Medicare has grown to about $50 trillion.

Entitlement spending continues automatically, by law, unless Congress intervenes. This is one reason why entitlement programs are strangling discretionary programs—projects whose funding Congress must re‑approve each year—with such ease. In 1982 about 30 percent of federal spending was discretionary. By 2022 only 10 percent will be. Do you think the government should spend more on job training for laid off manufacturing workers? On roads and other infrastructure? On scientific research? On the Environmental Protection Agency? Too bad.

The federal government’s debt is a levy on the future. We are borrowing money, spending it on ourselves, and handing the bill to our children. This they will have to pay. Their taxes will be higher, their benefits lower. Their capital investment, and thus their economy, will be stunted. They will be vulnerable to debt-driven inflation and political instability. They will have to grapple with tough choices precisely because we refuse to touch comparatively easier ones.

We are creating more than just debt. Above all we are creating risk. Nations, no less than people, must confront unwelcome surprises. A nation deep in debt is brittle; its overspending in the past narrows its options for coping with a crisis in the present. Although the probability of any given catastrophe’s occurring is small, the cumulative probability that one of them will at some point occur is significant. Our entitlement-driven trillion-dollar deficits now, during a time of growth, low unemployment, and relative peace, will look obscene to a future generation facing a depression, a war, or a pandemic.

What became of Rome? As further debasement of the coin became impracticable, the burden of the government’s insolvency was thrown on the citizens. Taxes rose even as public services deteriorated. Oppressed both by the government and by the rising disorder the government could not stem, property owners quit the land. The state ordered those who remained to pay the taxes on the abandoned fields, but tax revenues continued to decline. The state decreed that farmers’ sons were to become farmers themselves, yet the rural population continued to shrink. The state imposed price controls, and crop production continued to fall. Collapse set in. By the fifth century, Tainter observes, many Romans were ready to cast their lot with the invading barbarians.

In brief, the future came.

Also published by Forbes.com on WLF’s contributor page.

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