Notes From a Small Island
In the United States of America, land of the free and home of the brave, some things never change. Yes, as Americans, we love to stay true to our roots – and one of the ways we do that is by maintaining a ridiculously high national debt.
Ever since we won the Revolutionary War, we have had a large national debt. Other than a brief period during which President Andrew Jackson’s Administration completely paid it off, we have always owed other nations a lot of money. Some presidents, most recently Bill Clinton, have lowered the national debt during their administrations. Others have presided over massive increases in the debt. Either way, America’s been in debt for a very long time.
Americans seem to be fine with that, or at least they say as much when polled. Nobody wants taxes to go up, but nobody wants to cut spending anywhere, either.
What happens when a country with a massive national debt refuses to raise taxes or cut spending? What are the consequences when a government simply overspends until it has gone too far? For a peek, take a look at what is happening in Greece.
The worldwide economic recession hit Greece particularly hard. This has prompted the government there to drastically reduce spending on social services, which has led to riots throughout the country. The European Union recently announced a $100 billion bailout to Greece, mostly because the failure of a member of the Euro-zone would have widespread financial repercussion for the region. French President Nicolas Sarkozy has referred to the bailout in those terms, calling it an effort to “defend the euro.”
Most of those reading this article probably don’t know or care about the current economic state of Greece. After all, it’s Greece.
But a few commentators have recently given us a very good reason to take note of the situation in Greece. It might be a preview of what could happen to the United States, should we continue down our current path.
Before we get too far with the analogy, we should first note that there are significant differences between Greece and the United States. First, we do not share a common currency with any other countries, which gives us the autonomy to regulate the dollar and print more money if needed. Secondly, our economy is much more important to the global economy than that of Greece. If our economy crumbled, it would be much worse for the rest of the world than the situation in Greece has been. This financial game of mutually assured destruction should give America’s creditor pause should they decide to move to collect on that debt. Finally, lots of countries have national debts. While the total dollar amount of America’s national debt is the highest in the world, as a percentage of GDP (which measures economic output), America falls somewhere into the middle of the pack, behind countries like Japan, the United Kingdom, Germany and Switzerland.
Having said all of that, there is much that we can learn from the situation in Greece. The general problem is the same here as it is there – we have a government that is much bigger than it can afford to be. Americans have come to expect social services from the government, even as economic growth has leveled off. Decades of overspending have led us to where we are today. Two wars haven’t helped. Something has to give, and if we don’t address the problem, we might wind up like Greece, relying on other countries for a lifeline because of the hole we have burned in our collective wallet.
There isn’t time in this editorial to get into every detail of the national debt, but anyone can understand the general idea of owing someone else too much money. At some point, that someone is probably going to want their money back.
Our current national debt is somewhere around $13 trillion, and it is rising daily. China and Japan own almost half of that total debt. Really, though, it doesn’t matter who owns the debt. We just need to figure out a way to pay it back.
Politicians are certainly a huge part of the problem, but all of us need to remember that politicians cater to the electorate. If the majority of us want no tax hikes and no spending cuts, our elected officials will deliver that in order to protect their own jobs.
The solution is going to have to include a little bit of everything. Obviously, we are going to have to cut spending and taxes are going to have to go up. Most importantly, we are going to have to figure out how to get the American economy growing at a respectable rate again, because in the long run, growth is the worst enemy of national debt.
It’s high time we figured that out as a nation. We enjoy one of the lowest personal tax rates in the developed world. If we want to get ourselves out of the financial hole in which we find ourselves, that has to change. It’s time for us to realize that our collective dream of being able to solve all our problems without raising taxes is just that – a dream. For a dose of reality, we only need to look at what is happening to Greece, and we need to realize that if we don’t shape up, we could be going down that same path ourselves.
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