The latest print edition of National Review devotes 6 1/2 pages (roughly 13 percent of the issue) to Christopher DeMuth’s fascinating exploration of disturbing changes in public debt.
While the entire article is worth reading, of particular note is DeMuth’s description of the changing justification for government decisions to assume new debt.
As debt and deficits have grown, their function has changed from funding public investment to funding private consumption.
The traditional purpose of government debt is the provision of public goods with long lifespans, such as waterworks or aircraft carriers. Borrowing spreads their costs among the current and future taxpayers who benefit from them. Needless to say, the investments do not always turn out well. President Jefferson’s Louisiana Purchase was a triumph; President Obama’s Solyndra was a bust; President Ford’s swine-flu-inoculation program is still studied as a policy debacle; I am dubious about high-speed rail from Cedar Rapids to Chicago. And such investments are often controversial not only in prospect but also in retrospect. … Politics is aspirational, and government projects are open to varying interpretations (except where a project produces its own revenue stream, like a toll highway, to eventually settle the matter). The essential point is that debt was traditionally intended to expand and improve the future—through a larger and better capital stock, greater security against foreign threats, recovery from disasters and emergencies, and higher levels of invention and productivity.
These are not the primary purposes of today’s government borrowing, which is being used primarily to pay for immediate private consumption. The routinization of deficits and the growth of debt since 1970 have been accompanied, and encouraged, by a profound transformation in the nature of federal spending. … I have divided federal spending into two broad categories, based on line items in historical tables from the Office of Management and Budget. The first, Public Goods, consists of defense and international operations, from diplomacy to foreign aid; highways, airports, and other physical infrastructure; national parks and other preserves; courts, law enforcement, and the regulatory agencies; the National Institutes of Health and other research-and-development efforts; Congress; and smaller “general government” items. The second, Payments to Individuals, consists of money payments such as Social Security, unemployment compensation, and various welfare programs, and of in-kind provisions such as Medicare and Medicaid, food stamps, and housing subsidies.
DeMuth then explores changes in federal government spending on public goods versus payments to individuals from 1970 to 2014.
During this period—when large annual deficits became routine and debt grew from 36 percent to 103 percent of GDP—Payments to Individuals soared from 36 percent to 75 percent of annual spending while Public Goods plunged from 64 percent to 25 percent. Tracking spending to GDP, also shown on the chart, reveals a similar pattern: Payments to Individuals grew from 6 percent to 15 percent of GDP while Public Goods fell from 11 percent to 5 percent. The two signal innovations of post-1960s government—continuous borrowing to support regular spending, and spending primarily on private consumption—were concurrent. (Incidentally, essentially all of the fall in Public Goods has been in national defense; domestic public goods have stayed about constant, with the exception of increased spending on law enforcement—reflecting the costly “homeland security” measures introduced after 9/11 and also the continuing growth of federal criminal law.)
In other words, government has shifted its borrowing away from the goal of building for the future and toward the goal of enabling more consumption now.
The essence of our debt predicament is not so much its size as its source. It has grown to unprecedented levels not because of external crises or failed or over-ambitious public ventures, which would be bad enough. Rather, it has arisen from within, generated by our democracy itself. Through a long sequence of accommodations to immediate contingencies and opportunities, we have built a system in which the electorate expects, and political officials provide, a higher level of personal benefits than of tax collections to pay for the benefits. The difference is taxed to younger and future generations—to be paid in the future, by unknown subsets of them, through higher outright taxes, reduced benefits, debt defaults, or inflation. The situation is intractable because most of those being burdened are not voters (most are not even alive) and cannot be part of a constituency for reform.
