Opinion

Government Debt Impacts You

Jedediah Bila, Red Eye, 11-21-12

By Jedediah Bila

What is the impact of government debt on economic growth? Salim Furth at Heritage did a great job of outlining that today:

In one study, Manmohan Kumar and Jaejoon Woo of the International Monetary Fund (IMF) find that high-debt economies grew 1.3 percentage points slower than their low-debt counterparts. The negative effects of debt builds steadily as debt grows from low (below 30 percent of GDP) to high (above 90 percent).

Over a decade, a difference of 1.3 percentage points of growth would be $11,000 more—or less—every year per family in the U.S. That’s enough to send the kids to a state college or move to a nicer neighborhood.

Furth just did precisely what politicians should have been doing all along–place these arguments about the national debt, deficits, and GDP in the context of how they stand to affect the average American family. People simply don’t become passionate about things that feel removed and distant from their everyday lives. Big numbers and fancy statistics don’t mean anything if we don’t understand how they affect the food we can put on our dinner tables, the price of things we purchase at the grocery store, and/or the amount of money we’ll have in our bank accounts to put toward family expenses week to week.

Furth continues:

The U.S. has rapidly accumulated debt in the past five years. Using the IMF’s measure of federal, state, and local debt, U.S. debt has zoomed from 48 percent of GDP in 2007 to 84 percent in 2012.

In another study, Stephen Cecchetti, Madhusudan Mohanty, and Fabrizio Zampolli of the Bank for International Settlements use an econometric technique to identify the cutoff point after which high debt is particularly damaging to growth: 84 percent.

In other words, the time to fix things is now. I don’t know that Americans have the appetite to tackle entitlement reform or that many understand the gravity of our $16.6T debt. What I do know is that putting these enormous numbers in the context of how they affect our day-to-day lives today and tomorrow is key.

Individuals and families have budgets. We know what it means to cut costs. We know what happens if we keep spending money we don’t have.

So let’s talk about these things in ways that make sense. Facts and figures don’t mean anything if they don’t translate into real costs and real struggles that people can relate to.

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7 Comments on "Government Debt Impacts You"

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Forrest Wright
3 years 6 months ago
When Social Security began the money taken from our pay was placed in a fund, in a so called “Lock Box”, so the politicians could not touch it. The account was interest bearing and a reasonable approach for American workers to have a social security retirement income. Later the lock box was opened and the federal government took money out of account and replaced it with IOU’s. The Social Security system is in deep trouble just as is the Federal Government due to financial mismanagement by all three, House of Representatives, Senate, and the President. Worker Citizens should initiate a group campaign in every state instructing their Governors to tell the states elected federal politicians to support a bill to pay the Social Security fund IUO’s, with interest, and stop borrowing from the Social Security Fund. If this is not done within two years the promise should be “Voters shall… Read more »
Len Bliss
3 years 7 months ago

The largest and most important segment of this country is the baby boomers. Most economist call people born from 1946 to 1964 to be boomers. They are retiring on fixed income because 401k has not been around very long. We begged the Feds to let us control our own investments our entire lives. Now our children can benefit from our struggle. Unfortunately, the economy is gone. The retired men in my small town relied on savings and cd certificates. They retired before 401’s. They were earning 0.5% on their accounts 2 years ago. Now they earn nothing.
They only created the most powerful and most successful country in the world. Now we are paupers if not among the wealthy.

PaulE
3 years 7 months ago
You laid out the key reason why the GOP fails, time and again, to make a convincing argument to the average citizen when you stated “People simply don’t become passionate about things that feel removed and distant from their everyday lives. Big numbers and fancy statistics don’t mean anything if we don’t understand how they affect the food we can put on our dinner tables, the price of things we purchase at the grocery store, and/or the amount of money we’ll have in our bank accounts to put toward family expenses week to week.” Too many in the Republican Party talk “at” the people, not “to” the people. Throwing out high-level statistics and a barrage of numbers, that mean nothing to the average person, because they can’t relate any of it to their day-to-day lives, just leads most people to tune out. Reagan’s gift was that he could take an… Read more »
Maggie
3 years 7 months ago

I so like AMAC .They represent my values so much more than AARP. Ms Bila is just one of their most talented writers.

Philip Jordano
3 years 7 months ago
Debt and deficits do matter and we are spending our nation into bankruptcy because of our spendthrift ways. We have been living beyond our means for far too long. The author is correct when she states that, “putting these enormous numbers in the context of how they affect our day-to-day lives … is key.” It is extremely difficult for most people to imagine a million dollars so how do you comprehend a billion, trillion, or 16.6 trillion? Adam Smith told us that countries do go bankrupt. Sometimes it’s a real bankruptcy but often it is a hidden one. The hidden one comes in the form of inflation. Why was the average price of a home in 1950 less than $10,000? Why could you buy a loaf of bread for less than a quarter? One of the reasons the government has been debasing the currency is so it can pay back… Read more »
tony
3 years 7 months ago

Yes, most of the tv segments I see on this aren’t made viewer-friendly.

James
3 years 7 months ago

Thanks for posting, so important.

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