Let It Burn?

Why Aren’t We Talking About the National Debt?

One of my favorite scenes in 1996’s hit movie That Thing You Do! is when Guy “Shades” Patterson (played by Tom Everett Scott) inadvertently leaves the lights on at his family’s hardware store, and his father (played by Holmes Osborne) drives up in the middle of the night to shut them off. “Let it burn,” the elder Patterson grouses with sarcastic frustration. “Let it burn all night!”

That seems to be the attitude our political parties are taking toward the skyrocketing national debt during the 2024 presidential campaign.

“Federal debt is soaring. Here’s why Trump and Harris aren’t talking about it,” writes The Wall Street Journal. The Economist warns that “America’s reckless borrowing is a danger to its economy.” Political scientist Ian Bremmer laments that the deficit hawks are “close to extinction.” Bloomberg calls Trump’s and Harris’ economic plans “fiscal fakery.”

The Ramifications of Runaway Debt

Let’s be clear: The national debt, which currently stands at nearly $36 trillion, will not only pose significant economic and policy challenges for the next president – it could have far-reaching implications for the country’s economic stability and global standing.

First and foremost is the effect this much debt will have on the next administration’s budget. The U.S. public debt is comparable to the size of the entire economy, and the $1 trillion the U.S. government pays annually in debt service is now a larger line item than what we pay in defense spending. The new administration’s budget will require painful tradeoffs between funds for public services, capital for investments necessary to improve productivity, and resources for intervening in geopolitical conflicts around the world.

Second, a congressional agreement back in June 2023 to suspend the debt ceiling expires on January 1, 2025. The debt ceiling has historically been the catalyst for various degrees of legislative gridlock and governmental chaos. (Think back to 2013, when Texas Republican Senator Ted Cruz read aloud Dr. Seuss’ Green Eggs and Ham through the night to filibuster raising the debt ceiling.)

Finally, there is the impact on economic stability, both domestically and globally. The International Monetary Fund has warned that U.S. debt levels threaten to undermine global financial stability. My colleagues at Strategas Securities have written about the fact that the U.S. dollar’s status as the world’s only reserve currency is “an exorbitant privilege” that has made it possible for the U.S. to borrow beyond previously imagined limits … but only until the bill comes due. At that point, the country’s massive debt could lead to higher long-term interest rates and hard choices for policymakers.

Political Inaction

Federal Reserve Chairman Jay Powell has called for Washington to address the deficit “sooner rather than later.” “The U.S. federal government is on an unsustainable fiscal path,” he told CBS’ 60 Minutes. “And that just means that the debt is growing faster than the economy. … It’s probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable path.”

Unfortunately, there are few indications this election season that our Presidential candidates are anywhere near having an “adult conversation” about the level and trajectory of U.S. public indebtedness. Writes The Wall Street Journal:

The Republican and Democratic parties are alike in one important respect: Both now behave as though budget deficits don’t matter. Red and blue politicians alike seem to think we can increase spending, cut taxes indefinitely, and borrow whatever we need to close the gap while running up the national debt – all without paying a price.

What we know about Donald Trump’s economic policies is that they would increase the debt-to-GDP ratio from about 100% to 126% of GDP by 2028. Kamala Harris’ policies would increase it to 109%. “Even in the best case scenario,” says a recent report by the nonpartisan Committee for a Responsible Federal Budget “neither candidate’s plan would be sufficient to put debt on a downward path and point America toward a more secure and sustainable fiscal future.” Martin Wolf, author of The Crisis of Democratic Capitalism, writes that “both parties will happily run huge deficits – and let the future take care of itself.”

The last time there was a serious bipartisan effort to address the deficit was the National Commission on Fiscal Responsibility and Reform, created in 2010 by President Obama. Former U.S. Senator Judd Gregg, a member of that commission, contributed a chapter to my 2015 book, A Force for Good, in which he wrote:

"We have waited forever for a coherent policy from Washington on the issue of the debt. This side blames that side, then this side blames this side.” But “there is an opportunity to change this now. Not with another debt ceiling fight, or a government shut down, or a false debate over tax burden. But we can change it with a few difficult but long-lasting acts of leadership on key issues."

Will our next president be willing to have an adult conversation and set us on a course of fiscal responsibility? Or are we really willing to let it burn?