Remember the last time the deficit hit $1 trillion? It was 2012, and the country was just beginning to climb out of the worst recession in decades.
Now fast forward to today. The Congressional Budget Office -- Washington’s trusted fiscal watchdog — expects the federal government to hit that trillion-dollar mark this year.
That’s nothing to celebrate. In fact, it’s dangerous. At $23 trillion, the national debt already exceeds the size of the U.S. economy. This year’s deficit simply pours more gasoline on an already raging fiscal fire.
The situation is actually far worse than most people realize. That $23 trillion figure fails to account for massive unfunded obligations facing the U.S. government through programs such as Social Security and Medicare.. This so-called fiscal gap, which measures the difference between projected revenues and spending over the long-run, threatens future generations with ten times the current debt burden.
All of this is happening while America is experiencing one of the longest economic expansions in the country’s history with unemployment at historic lows, wages rising (especially for those with lower incomes), and an economy that continues growing and expanding despite headwinds.
That’s exactly the problem. It is simply unprecedented for the American nation to shoulder such high levels of deficits and debt at a time of relative peace and economic prosperity.
Way back in the 1960s, economist Milton Friedman wryly observed, "We are all Keynesians now." But even John Maynard Keynes wouldn’t have countenanced today’s deficit spending. According to Keynes, governments should be accumulating surpluses during economic boom times to help counteract business cycle contractions—not expand government spending, regardless of season. The latter is a recipe for fiscal collapse.
The Congressional Budget Office tends to focus on yet another measure of our current debt burden: publicly held debt. This refers exclusively to debt borrowed in credit markets; it excludes intragovernmental debt, which represents debt to Social Security beneficiaries, military veterans, and others.