During his State of the Union speech, President Obama focused on the American economy. Successfully pinpointing its plight, he proposed a jobs bill to help get Americans back to work and stimulate the economy. The President also proposed increasing exports through trade agreements, investing in the skills and education of Americans, reforming health care and bringing down budget deficits. All of these are ambitious, but necessary, goals.
I think it is safe to assume that for most Americans economic success is a top priority. At the heart of economic success are two things: Jobs and our national debt.
As it stands, the total U.S. debt is a staggering $12.3 trillion and some 87 percent of our total Gross Domestic Product. Based on the 2010 U.S. budget, total national debt is projected to nearly double in dollar terms between 2008 and 2015 and will grow to nearly 100 percent of GDP.
Additionally, as the debt ratio increases the exchange value of the dollar may fall. Paying back debt with cheaper currency could cause investors and other governments to demand higher interest rates if they anticipate further dollar depreciation. Paying higher interest rates could slow economic growth.
This is a real threat.
At the heart of our national debt are our yearly budget deficits. Since 1970, the U.S. federal government has run deficits every year except 1998-2001. Since 2001 government spending has spiraled out of control. The two major Bush tax cuts – compounded with the launch of two wars – produced an average annual deficit of $550 billion. To top it off, in 2008 the deficit reached an unprecedented $1 trillion. That’s $1,000,000,000,000.00. Granted, much of the 2008 deficit is the result of the $700 billion Toxic Asset Relief Program.
More detrimental than the unplanned spending are entitlement programs, such as Medicaid, Medicare and Social Security. Between 1966 and 2006, Medicare, Medicaid and Social Security have grown from 16 percent of the budget to 40 percent. According to the Congressional Budget Office, the costs of these programs are projected to get worse because demographic trends show that the number of workers paying into the program is declining relative to those receiving benefits. If this trend continues, mandatory spending for these programs will exceed taxes dedicated to these programs by more than $40 trillion over the next 75 years. According to the Government Accountability Office, these will double debt-to-GDP ratios by 2040 and double them again by 2060, reaching 600 percent by 2080.
In other words, by 2080 these mandatory programs alone will take up all government revenues with current projections – leaving no room for other forms of discretionary spending.
On another front, oil reserves throughout the world are projected to peak in 2020, while demand is expected to increase. This means more people around the world are going to demand more of an ever decreasing resource supply, which will cause the price of all petroleum related products to increase. These products include everything from pesticides and fertilizers, plastic bottles and gasoline. Because of this, the costs of food and transportation will steadily rise throughout the world.
One thing the economic crisis taught us is that Americans don’t produce as many tangible products. Finance and manufacturing – as proportions of GDP – have switched roles over the course of the last thirty years, with finance comprising 24 percent of GDP and manufacturing 11 percent.
We should use this unique period of economic vulnerability to make some much-needed changes: invest in re-tooling our infrastructure to be more energy efficient and increase the research and development of sustainable energy solutions. This is our best chance – and in my opinion our only chance – to become economically successful in the 21st century. Increasing the manufacture of these products will give America a market advantage on the world stage, increase exports, hopefully put thousands of Americans into secure and well paying jobs and bring the national debt down by reducing our yearly deficit. Leaving such a task up to the market may not, and most likely will not, be quick enough.
Moreover, with health care costs continuing to rise and an aging population claiming more entitlements, it will be necessary for congressional leaders to pass effective and comprehensive health care reform.
Unfortunately for me – and many Americans – the question remains: How?
To anyone who has followed the political events of the last year – particularly health care reform – it might seem as if effective political action from our congressional leaders is impossible. The argument from the right is a stream of antisocialist propaganda from which Democrats feel compelled to distance themselves. With the exception of the Recovery and Reinvestment Act, little or no bipartisan agreements have been reached.
So how, with our Congressional leaders and media pundits bitching and moaning over abstract concepts like death panels, do we get the reform that our commander-in-chief summarized in his State of the Union speech?
Personally, I hope our Congressional leaders will heed the reminder President Obama gave them, “We were sent here to serve our citizens not our ambitions.”