So you think $14 Trillion in debt is bad? Yes, that’s around 90% of GDP, and yes, that tends to prevent the economy from growing according to most economists, but according to an excellent piece by Kevin Williamson in National Review this week, we “ain’t seen nothin’ yet.”
Williamson writes: “Beyond the official federal debt, there is another $2.5 trillion or so in state and local debt, according to Federal Reserve figures. Why so much?”
He goes on to answer the question:
A lot of that debt comes from spending that is extraordinarily stupid and wasteful, even by government standards. Because state and local authorities can issue tax-free securities — municipal bonds — there’s a lot of appetite for their debt on the marketplace, and a whole platoon of local special-interest hustlers looking to get a piece. This results in a lot of misallocated capital: By shacking up with your local economic-development authority, you can build yourself a new major-league sports stadium with tax-free bonds, but you have to use old-fashioned financing, with no tax benefits, if you want to build a factory — which is to say, you can use tax-free municipal bonds to help create jobs, so long as those jobs are selling hot dogs to sports fans.
Thus the disparity between “old-fashioned financing” and the governments’ method may in fact lead to a small net increase in revenue to the ball-park mustard industry, but at a massive net increase to the debt. It get’s worse, through:
So that’s $14 trillion in federal debt and $2.5 trillion in state-and-local debt: $16.5 trillion. But I’ve got some bad news for you, Sunshine: We haven’t even hit all the big-ticket items:
The debt numbers start to get really hairy when you add in liabilities under Social Security and Medicare — in other words, when you account for the present value of those future payments in the same way that businesses have to account for the obligations they incur. Start with the entitlements and those numbers get run-for-the-hills ugly in a hurry: a combined $106 trillion in liabilities for Social Security and Medicare, or more than five times the total federal, state, and local debt we’ve totaled up so far. In real terms, what that means is that we’d need $106 trillion in real, investable capital, earning 6 percent a year, on hand, today, to meet the obligations we have under those entitlement programs. For perspective, that’s about twice the total private net worth of the United States. (A little more, in fact.)
Suffice it to say, we’re a bit short of that $106 trillion. In fact, we’re exactly $106 trillion short, since the total value of the Social Security “trust fund” is less than the value of the change you’ve got rattling around behind your couch cushions, its precise worth being: $0.00.
If this were an informercial, you could hear the unfortunately over-enthusiastic announcer on the television: but wait, there’s more!
There’s more, of course. Much more. Besides those monthly pension checks, the states are on the hook for retirees’ health care and other benefits, to the tune of another $1 trillion. And, depending on how you account for it, another half a trillion or so (conservatively estimated) in liabilities related to the government’s guarantee of Fannie Mae, Freddie Mac, and securities supported under the bailouts. Now, these aren’t perfect numbers, but that’s the rough picture: Call it $130 trillion or so, or just under ten times the official national debt. Putting Nancy Pelosi in a smaller jet isn’t going to make that go away.
It is of the highest importance that the friends of liberty remember the threat debt holds for our freedoms, for in King Solomon’s ancient words, “the borrower is servant to the lender.”
“He that goes a borrowing goes a sorrowing.” – Benjamin Franklin – 1758
“The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” – Thomas Jefferson – letter to John Taylor – May 28,1816
“If we can prevent the government from wasting the labors of the people, under the pretence of taking care of them, they must become happy.” – Thomas Jefferson – letter to Thomas Cooper – November 29, 1802
“[T]he government of the United States is a definite government, confined to specified objects. It is not like the State governments, whose powers are more general. Charity is no part of the legislative duty of the government.” – James Madison – Speech in the House of Representatives – January 10, 1794
“Enlightened statesmen will not always be at the helm.” – James Madison – Federalist No. 10 – November 23, 1787
“It is a misfortune incident to republican government, though in a less degree than to other governments, that those who administer it, may forget their obligations to their constituents, and prove unfaithful to their important trust.” Federalist No. 62 – 1788
“There is not a more important and fundamental principle in legislation, than that the ways and means ought always to face the public engagements; that our appropriations should ever go hand in hand with our promises. To say that the United States should be answerable for twenty-five millions of dollars without knowing whether the ways and means can be provided, and without knowing whether those who are to succeed us will think with us on the subject, would be rash and unjustifiable. Sir, in my opinion, it would be hazarding the public faith in a manner contrary to every idea of prudence.” – James Madison – Speech in Congress – April 22, 1790