Commentary: The U.S. national debt has reached $40 trillion. Should you care?
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Set us as preferred Americans have gotten used to hearing big numbers from the federal government since the 1960s, when Sen.Everett Dirksen (R-Ill.) supposedly uttered his famous quote, “A billion here, a billion there, and pretty soon you’re talking real money.” But a much bigger number caught people’s attention in the last week.That was the revelation that the national debt had reached $40 trillion.
The news provoked vigorous hand-wringing across the partisan spectrum and multiple hives of economists.News columns and cable programs featured lengthy discussions about how this happened and what to do about it, all presented against an apocalyptic backdrop.
CNN, for example, called it a “grim milestone.” A lot of what happens in markets is driven by pure stupidity—or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories.— Economist Robert Shiller (2011)Yet much, if not all, of this is needlessly overwrought.We know why the national debt has mushroomed, doubling over only the last 10 years.
The most commonly cited scapegoats are the social insurance programs Social Security, Medicare and Medicaid.They’re costly, no doubt, but their cost is manageable within the confines of federal fiscal policy.
Social Security, in particular, is fully funded today by payroll taxes and interest on the program’s trust fund holdings of Treasury bonds, which have been purchased with payroll tax receipts.There may be a shortfall around the middle of the next decade, but that can be resolved largely by raising the payroll tax on the wealthiest Americans, who currently get an exemption on much of their income.Commentary on economics and more from a Pulitzer Prize winner.
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