115th Congress, Budget, Congress, Energy, House of Representatives, Issues, Senate

Can’t grow the economy and prevent default without expanding the electric grid

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The nearly $20 trillion national debt will consume economy if we don’t start growing robustly — and soon.

Image Credit:
Nicolas Henderson CC by 2.0

Here are some sobering numbers.

Since the year 2000, the debt has been growing nominally at almost 7.7 percent a year. But the economy, before adjusting for inflation, has been growing much slower at little more than 3.9 percent a year.

As a result, the nation’s debt to Gross Domestic Product (GDP) ratio has grown, from 55 percent to 104 percent today in just 17 years.

If these two factors remain constant, in 20 years, the national debt will be a whopping $96.4 trillion while the economy’s GDP will only be $40.8 trillion — a unimaginable debt to GDP ratio of 236 percent.

In 2016, the U.S. paid $429.9 billion of gross interest owed on the debt, according to the Office of Management. That is an effective interest rate of 2.2 percent. At nearly $100 trillion of debt, well you can do the math, that would be $2.12 trillion of annual interest payments.

That’s a lot. In 2016, the government collected almost $3.3 trillion in tax revenue. If the economy were to really grow to $40.8 trillion by 2037, one might expect revenues to rise to an annual $7.2 trillion in that time, that is, if the revenue to GDP ratio remained constant.

Even then, about 29 percent of the federal government’s tax revenues would go to paying interest owed on the debt. Right now, that ratio is a little more than 13 percent.

Are you seeing red? Perhaps that’s because your eyes are now bleeding. Can you say downgrade? Nobody wants to admit the problem, but we’re practically whistling past the graveyard at the moment.

The solution, naturally, would be to balance the budget as quickly as possible. To its credit, the Trump administration has proposed a budget that gets to balance within 10 years, with $4.5 trillion of real spending cuts off of the government’s projected baseline spending over the next decade.

But we know how Congress deals with these matters. The President’s budget is never adopted. All Congressional “leaders” — I use the term generously — appear myopically capable of in recent times has been simply approving the same budget year-in, year-out.

Again, assuming nothing changes fiscally and to do with economic growth, the debt to GDP ratio will be a shocking 236 percent by 2037.

So, if Congress is not going to do anything to help, which, why would they? Sorry to be a pessimist but perhaps when Congress actually does something to lower the debt to GDP ratio on its own, which given how slowly the economy is growing, would practically require a balanced budget overnight, then we can change that assumption. In the meantime, nobody should expect Congress to solve our fiscal woes on its own.

Not without some help from the economy, that is. Yes, the other way to reduce the debt to GDP ratio would be to rapidly expand the economy, nominally faster than the debt.

Meaning, almost everything you can think of. Cut taxes, bring production back into the U.S., slash regulations, lower health care costs, incentivize investment in U.S.-based businesses and a key one not often discussed, expand the U.S. electricity grid.

In the past decade, the U.S. electricity grid has not produce any additional electricity. We produced 4 trillion kilowatt hours in 2007 and 3.9 trillion kilowatt hours in 2016. No growth whatsoever.

No wonder the economy has barely grown the past 10 years, which adjusting for inflation, was the worst economic growth since the GDP was invented as a measure.

Therefore, one of the greatest impediments to growth — which will make us go bankrupt and if you need a reminder see above — is the inability of the federal government to allow the electrical grid to expand. Instead, we’ve been closing power plants, leaving little spare capacity for the economy to grow.

This week, President Donald Trump is promoting energy week and will talk up American energy dominance at a speech in Washington, D.C. on Thursday. Given the state of the economy after enduring the Obama administration’s power-freezing regulations, the emphasis on expanding U.S. access to energy is particularly well-timed.

It’s a rather simple choice for the nation and for the establishment in Washington, D.C. that foisted these regulations upon us. The economy cannot grow without expanding the electric grid. And if we do not grow the economy, we’re going to go broke.

This is a guest post by Robert Romano senior editor of Americans for Limited Government.

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