By Sen. Tom Coburn (R-Okla.) - 03/18/13 10:37 PM EDT
I recently praised President Obama for his willingness to reach out to congressional Republicans as we grapple with the country’s long-term economic challenges. I have also appreciated the president’s willingness to state publicly and explicitly what has long been one of the greatest barriers to a grand bargain — the fact that the two sides have a very different view of the urgency of the threat our debt and deficit pose to our economy.
As President Obama told ABC’s George Stephanopoulos recently, “[W]e don’t have an immediate crisis in terms of debt. In fact, for the next 10 years, it’s gonna be in a sustainable place.”
The president and many in his administration, on the other hand, simply don’t believe the debt threat is all that urgent. Joining the president in his camp would be economist Paul Krugman, who believes short-term deficits aren’t a big deal and that we should spend even more on stimulus to get our economy growing in the short term.
One of the best arguments against the president’s view comes from Federal Reserve Ben Bernanke, who said in early 2011, “By definition, the unsustainable trajectories of deficits and debt that the [Congressional Budget Office] outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit.”
Bernanke then added, quoting a famous line from economist Herbert Stein, “If something can’t go on forever, it will stop.
What Bernanke is saying “will stop” is the practice of the international financial community lending us money to finance everything from our military to the entitlement benefits for the poor, elderly and disabled we have stolen from trust funds. These benefits are now endangered because of our severe debt load.
The president would say we have at least 10 years to avoid Bernanke’s debt crisis scenario, but he’s underestimating our debt burden. The president prefers the CBO numbers, which say our debt burden is about 73 percent of our gross domestic product. However, if you count the debt our government owes itself, our debt-to-GDP ratio is already about 103 percent, or 120 percent if you count debt like many European countries do, by adding all debt (federal, state, local and municipal).
This is not a far-off threat. In two years, the Social Security disability trust fund goes bankrupt. In five years, Medicare Part A — the hospital insurance trust fund — could also go under.
More importantly, our debt load is already slowing growth and hurting American families. Economists Carmen Reinhart and Kenneth Rogoff argue advanced economies like ours slow by 1 point of GDP when we hit a gross debt-to-GDP ratio of 90 percent, which we hit in 2010. When we normally grow at 3 to 4 percent a year, each single point of GDP we lose means we slow growth by 25 to 33 percent. That slowdown amounts to about 1 million jobs not created.
The nature of a debt crisis is that no one knows it’s imminent until it’s already started. Yet, it’s worth looking at the accuracy of the administration’s previous forecasts. The last time President Obama made a bold economic prediction was in early 2009, when he said the stimulus would create 3.5 million jobs and would bring the unemployment rate down to 7.25 percent by the end of 2010. The record shows the president was wildly optimistic. One, it’s March of 2013 and we’re still waiting for the unemployment rate — now at 7.7 percent — to reach 7.25 percent. Two, the total number of jobs created or saved by the stimulus — 700,000 — was a mere 20 percent the amount the president predicted.
If the president is being similarly optimistic about how long we have to avoid a debt crisis, we have closer to two years, not 10 years, to act. The sooner we enact a plan, the better.
Coburn is the author of The Debt Bomb: A Bold Plan to Stop Washington From Bankrupting America (2012). The paperback edition comes out in April.