Hey guys! We've talked about politics in the past before on this fine forum, but there's one important topic that gets glossed over too often, so I'm going to try to break it down just for the 'Temp. Ladies and Gentlemen, I give you. . .
First, let's start off with some basic stuff.
What is the National Debt?
The national debt is the sum of all the money the US has borrowed in it's lifetime and still not payed back. The national debt came out due to our budget often running at an annual deficit, which means that we've spent more money that year than we've collected through taxes. In order for the US debt to increase, we need to start running a surplus, which is the opposite of a deficit- we would be collecting more in taxes than we spend.
Wait, so we're spending more money than we actually have? And the government is in debt? By how much, exactly?
Yep, this is true, and it has been to a varying degree for most of the US's existence. Here's a nice graph on how much our deficit has varied over the year, as a percentage of the US GDP:
Again, this graph should give you a basic idea of how much the government has been overspending. As for the debt itself, it's an ever-changing number and can be seen in real time here. It's currently hovering around $19.93 trillion.
Ok, that's all great, but why does it even matter that we're in debt?
The answer to this is surprisingly simple and lies in how debt works. When one borrows, they almost always have to agree to pay back with interest, and the US is no exception. Because we're in debt, we have to make interest payments, and while we expand our debt, we increase the amount of interest we have to pay. This is bad because it limits our ability to spend on on other things and control our deficit- in other words, borrowing now makes it hard to borrow later.
Well, here's a breakdown of what the US spends on.
There's a lot of info there, so let's take a closer look.
At first glance, you can easily see that most of our spending is in the green group titled "Mandatory Spending", which is exactly what it's name implies. Those programs are automatically included in the budget and will not be removed from it unless Congress specifically passes legislation to abolish those programs. These include what are usually referred to as "entitlement programs" and the salaries of government workers such as elected officials and bureaucrats.
On the other hand, discretionary spending is determined by Congress on an annual basis, usually through an appropriations bill that includes all the programs that Congress wishes to tack on to the budget. As a fun fact, the inability to pass a new yearly bill before the next one expires is what causes a government shutdown, where the US government immediately ends all non-essential discretionary spending. It's the blue in the graph above.
Mandatory Spending
The biggest parts of the budget are three often-debated programs: Social Security, Medicare, and Medicaid. This is worrisome not only because they are so expensive, but because their costs are growing.
Clocking in at heavy-hitter #3, Medicaid is a health care system designed for the poorest Americans, and includes elements such as the (in)famous Obamacare. It is also the most complex of these three programs, because it is not only a federal program- instead it is a joint federal-state effort, in which the government gives money to individual states for it and they in turn manage it on a state level. This, admittedly, makes it hard to find good statistics on it for the nation as a whole. Medicaid spending, similar to the next to heavy-hitters, has been growing for two reasons- a growth in enrollment and a growth on spending per recipient. As seen in a 2016 government report, the growth in costs remains stagnant (but, remember, these costs are growing) while growth in enrollment has been high, although this varies across different time periods and states. The second part of that last sentence includes both Obamacare's biggest success and complication- since passing in 2010, it has expanded coverage for several million Americans, but has also thus driven costs up. The effects of this, again, vary greatly across state lines, however our failure cover all costs has driven up the debt.
Heavy-hitters #2 and #1 are Medicare and Social Security, respectively. These two are, arguably, the biggest threat to the debt. Both supply benefits to the oldest Americans- Medicare covers their health costs (currently starting at age 65), while Social Security supplies income to be used during retirement (currently starting between ages 62 to 70, with bigger payments for those who wait). This is important, because the population of the US is aging. Take a look at the US's population pyramid, which shows a breakdown of the population by age. It indicates that an increasing number of Americans is set to receive these benefits in recent years, which would thus drive up the debt more. On top of that, Medicare also has to face rising health care costs, which will put it even further in debt. There is also one more tidbit of information to keep in mind; although Social Security is the most expensive program in the current budget, it is not the biggest threat to the National Debt. The answer as to why that is lies in this neat little graph here. As you can see here, both programs have ways of collecting revenue, and Medicare is running a larger deficit. (I couldn't find a similar graph for Medicaid, sorry).
Unfortunately, placing limits on these programs is, to say the least, not a sound solution. Many Americans depend on them - were it not for Medicare and Medicaid, millions of Americans would have no health care above, and Social Security remains many retirees' primary source of income.
Cutting them is also basically politically impossible. These programs tend to be very popular, and cutting them would likely be the final nail in the coffin for a politician's chance at re-election. If you're the guy saying "I'm going to take the programs you need from you," chances are that you won't have a job for long.
TL DR The most expensive programs are getting more expensive over time, but so many Americans need them that we can't reasonably put a stopper on them.
Discretionary Spending
Discretionary Spending is split into two much more simple categories- Defense and Non-Defense.
In case you haven't noticed, we spend a lot on Defense, more than anybody else in the world by a long shot. Because of this, no country is currently willing to enter into a direct armed conflict with us, but our indirect conflicts are still fairly important - no one wants to drop the fight against ISIS or not be ready for any crazy thing North Korea tries. Whichever way you paint it, no one in Congress is seriously advocating for dropping military spending.
The Non-Defense category is pretty broad, and includes everything we spend money on for a short time. If a state, for example, wants more money to repair some bridges, that would go in here. If Washington D.C. wants a new monument, that goes in here. As you can see, this includes a lot, but there is one general issue that appears in this block that's worth mentioning- earmarks. Earmarks are when Representatives or Senators tack on spending to an appropriations bill in order to favor either lobbyists or their constituents. That's all fine and dandy in theory, because it serves as a tool for negotiation to get things done ("you support my earmark, I'll support yours") but there's a drawback- much of the spending that occurs through earmarks serves absolutely no practical purpose. Take, for example, this case from 2014, where we gave the Army a bunch of Abrams tanks that the Army itself said we didn't need. In an ideal world, we don't spend money on useless stuff- but since that useless spending brings money to a Congressman's constituents and backers, we are doing just that. How much money we waste due to earmarks is up for debate, but it's certainly not helping in the long run.
So then, what can we do?
I don't necessarily have a definite answer to that- and even if I did, you shouldn't take tips on how to finance a government from an Elekid with sunglasses as a universal solution. But, the basis of the problem dictates that reducing our expenses by directly cutting off contributions to stuff is unlikely. Thus, we have to figure out how to make the stuff we pay for more sustainable. Here are my ideas:
First, we need to invest in ways to drive down health care costs per person. Currently, individual health care costs are going up, and this is the biggest problem with Medicare and Medicaid. We thus need to invest in ways to make medicines and procedures cheaper, because this will move us towards a surplus and make increased enrollment in government medical programs more sustainable. If we're serious about doing this, the government needs a role in doing so- everyone else who would so would be after personal profit, which puts us back where we began.
We also need to raise public consciousness on earmarks, and thus make them politically unprofitable. No one knows for sure how much money we're losing due to them, but we currently continue to vote in the cronies that push them forward, and that shouldn't stand. In the long-run, this benefits the entire nation as a whole.
We also need to demand that each program be sustainably funded- in short, the money that each program spends should be covered by the tax that generates revenue for it, in order to prevent things like deficits on individual entitlements. Yes, this does unfortunately mean raising taxes, but if we don't do so we'll pay (literally) in the long run.
Finally, we need to get out and vote in a fiscally conscious way. I'm going to make people mad by saying this, but it doesn't make financial sense to be running a deficit and still ask for things like, say, a very expensive wall along our border and completely tuition-free universities. If a candidate says things that don't make financial sense, don't vote for them, plain and simple. And we need to make sure that the Debt doesn't remain a non-issue. Because most people in the US simply don't care, most campaigns don't even have a definite answer on how to handle the debt. Take a look at this clip from the third presidential debate from this past election, where the moderator asks Clinton and Trump how they're gonna handle the debt. Both of them basically dodge the question. We need to make sure this is an issue that we as a country have in mind, or else the individual politicians won't care either.
So, what do you think? Let us know down below in the comments section! And if you don't live in the US, feel free to tell us about your country's debt situation to get an idea of the rest of the world.
What is the National Debt?
The national debt is the sum of all the money the US has borrowed in it's lifetime and still not payed back. The national debt came out due to our budget often running at an annual deficit, which means that we've spent more money that year than we've collected through taxes. In order for the US debt to increase, we need to start running a surplus, which is the opposite of a deficit- we would be collecting more in taxes than we spend.
Wait, so we're spending more money than we actually have? And the government is in debt? By how much, exactly?
Yep, this is true, and it has been to a varying degree for most of the US's existence. Here's a nice graph on how much our deficit has varied over the year, as a percentage of the US GDP:
Ok, that's all great, but why does it even matter that we're in debt?
The answer to this is surprisingly simple and lies in how debt works. When one borrows, they almost always have to agree to pay back with interest, and the US is no exception. Because we're in debt, we have to make interest payments, and while we expand our debt, we increase the amount of interest we have to pay. This is bad because it limits our ability to spend on on other things and control our deficit- in other words, borrowing now makes it hard to borrow later.
There is also another effect of having a national debt, and it's referred to in economics as the Crowding Out effect. It dictates that there is a set quantity of loans out in the world, and because the government is a large buyer in the loans market, there are less loans out there for businesses and private citizens. An increase in demand for loans also tends to increase interest rates, which again makes it harder to borrow.
And finally, we also face the long-term threat of defaulting on our loans. This is pretty much the ultimate doomsday scenario, and at the rate we're going its not set to happen in our lifetimes- but what we're gambling with is our kids' futures. If we default on our loans, or end up not able to pay them back, we pretty much trigger the financial ruin of our government. We would need to pay for everything we do up front, meaning we would need to keep large reserves of money just to make ends meet, and we would thus have to raise taxes and cut spending in a very major way. In short, this would ruin our country.
What exactly are we spending all this money on?And finally, we also face the long-term threat of defaulting on our loans. This is pretty much the ultimate doomsday scenario, and at the rate we're going its not set to happen in our lifetimes- but what we're gambling with is our kids' futures. If we default on our loans, or end up not able to pay them back, we pretty much trigger the financial ruin of our government. We would need to pay for everything we do up front, meaning we would need to keep large reserves of money just to make ends meet, and we would thus have to raise taxes and cut spending in a very major way. In short, this would ruin our country.
Well, here's a breakdown of what the US spends on.
At first glance, you can easily see that most of our spending is in the green group titled "Mandatory Spending", which is exactly what it's name implies. Those programs are automatically included in the budget and will not be removed from it unless Congress specifically passes legislation to abolish those programs. These include what are usually referred to as "entitlement programs" and the salaries of government workers such as elected officials and bureaucrats.
On the other hand, discretionary spending is determined by Congress on an annual basis, usually through an appropriations bill that includes all the programs that Congress wishes to tack on to the budget. As a fun fact, the inability to pass a new yearly bill before the next one expires is what causes a government shutdown, where the US government immediately ends all non-essential discretionary spending. It's the blue in the graph above.
Mandatory Spending
The biggest parts of the budget are three often-debated programs: Social Security, Medicare, and Medicaid. This is worrisome not only because they are so expensive, but because their costs are growing.
Clocking in at heavy-hitter #3, Medicaid is a health care system designed for the poorest Americans, and includes elements such as the (in)famous Obamacare. It is also the most complex of these three programs, because it is not only a federal program- instead it is a joint federal-state effort, in which the government gives money to individual states for it and they in turn manage it on a state level. This, admittedly, makes it hard to find good statistics on it for the nation as a whole. Medicaid spending, similar to the next to heavy-hitters, has been growing for two reasons- a growth in enrollment and a growth on spending per recipient. As seen in a 2016 government report, the growth in costs remains stagnant (but, remember, these costs are growing) while growth in enrollment has been high, although this varies across different time periods and states. The second part of that last sentence includes both Obamacare's biggest success and complication- since passing in 2010, it has expanded coverage for several million Americans, but has also thus driven costs up. The effects of this, again, vary greatly across state lines, however our failure cover all costs has driven up the debt.
Heavy-hitters #2 and #1 are Medicare and Social Security, respectively. These two are, arguably, the biggest threat to the debt. Both supply benefits to the oldest Americans- Medicare covers their health costs (currently starting at age 65), while Social Security supplies income to be used during retirement (currently starting between ages 62 to 70, with bigger payments for those who wait). This is important, because the population of the US is aging. Take a look at the US's population pyramid, which shows a breakdown of the population by age. It indicates that an increasing number of Americans is set to receive these benefits in recent years, which would thus drive up the debt more. On top of that, Medicare also has to face rising health care costs, which will put it even further in debt. There is also one more tidbit of information to keep in mind; although Social Security is the most expensive program in the current budget, it is not the biggest threat to the National Debt. The answer as to why that is lies in this neat little graph here. As you can see here, both programs have ways of collecting revenue, and Medicare is running a larger deficit. (I couldn't find a similar graph for Medicaid, sorry).
Unfortunately, placing limits on these programs is, to say the least, not a sound solution. Many Americans depend on them - were it not for Medicare and Medicaid, millions of Americans would have no health care above, and Social Security remains many retirees' primary source of income.
Cutting them is also basically politically impossible. These programs tend to be very popular, and cutting them would likely be the final nail in the coffin for a politician's chance at re-election. If you're the guy saying "I'm going to take the programs you need from you," chances are that you won't have a job for long.
TL DR The most expensive programs are getting more expensive over time, but so many Americans need them that we can't reasonably put a stopper on them.
Discretionary Spending
Discretionary Spending is split into two much more simple categories- Defense and Non-Defense.
In case you haven't noticed, we spend a lot on Defense, more than anybody else in the world by a long shot. Because of this, no country is currently willing to enter into a direct armed conflict with us, but our indirect conflicts are still fairly important - no one wants to drop the fight against ISIS or not be ready for any crazy thing North Korea tries. Whichever way you paint it, no one in Congress is seriously advocating for dropping military spending.
The Non-Defense category is pretty broad, and includes everything we spend money on for a short time. If a state, for example, wants more money to repair some bridges, that would go in here. If Washington D.C. wants a new monument, that goes in here. As you can see, this includes a lot, but there is one general issue that appears in this block that's worth mentioning- earmarks. Earmarks are when Representatives or Senators tack on spending to an appropriations bill in order to favor either lobbyists or their constituents. That's all fine and dandy in theory, because it serves as a tool for negotiation to get things done ("you support my earmark, I'll support yours") but there's a drawback- much of the spending that occurs through earmarks serves absolutely no practical purpose. Take, for example, this case from 2014, where we gave the Army a bunch of Abrams tanks that the Army itself said we didn't need. In an ideal world, we don't spend money on useless stuff- but since that useless spending brings money to a Congressman's constituents and backers, we are doing just that. How much money we waste due to earmarks is up for debate, but it's certainly not helping in the long run.
So then, what can we do?
I don't necessarily have a definite answer to that- and even if I did, you shouldn't take tips on how to finance a government from an Elekid with sunglasses as a universal solution. But, the basis of the problem dictates that reducing our expenses by directly cutting off contributions to stuff is unlikely. Thus, we have to figure out how to make the stuff we pay for more sustainable. Here are my ideas:
First, we need to invest in ways to drive down health care costs per person. Currently, individual health care costs are going up, and this is the biggest problem with Medicare and Medicaid. We thus need to invest in ways to make medicines and procedures cheaper, because this will move us towards a surplus and make increased enrollment in government medical programs more sustainable. If we're serious about doing this, the government needs a role in doing so- everyone else who would so would be after personal profit, which puts us back where we began.
We also need to raise public consciousness on earmarks, and thus make them politically unprofitable. No one knows for sure how much money we're losing due to them, but we currently continue to vote in the cronies that push them forward, and that shouldn't stand. In the long-run, this benefits the entire nation as a whole.
We also need to demand that each program be sustainably funded- in short, the money that each program spends should be covered by the tax that generates revenue for it, in order to prevent things like deficits on individual entitlements. Yes, this does unfortunately mean raising taxes, but if we don't do so we'll pay (literally) in the long run.
Finally, we need to get out and vote in a fiscally conscious way. I'm going to make people mad by saying this, but it doesn't make financial sense to be running a deficit and still ask for things like, say, a very expensive wall along our border and completely tuition-free universities. If a candidate says things that don't make financial sense, don't vote for them, plain and simple. And we need to make sure that the Debt doesn't remain a non-issue. Because most people in the US simply don't care, most campaigns don't even have a definite answer on how to handle the debt. Take a look at this clip from the third presidential debate from this past election, where the moderator asks Clinton and Trump how they're gonna handle the debt. Both of them basically dodge the question. We need to make sure this is an issue that we as a country have in mind, or else the individual politicians won't care either.
So, what do you think? Let us know down below in the comments section! And if you don't live in the US, feel free to tell us about your country's debt situation to get an idea of the rest of the world.
Last edited by ThisIsDaAccount,
