Last week I read with my usual glee Paul Krugman's slam down of Harvard economists Carmien Reinhart and Kenneth Rogoff. Krugman nailed these academics for a spreadsheet error which amplified their conclusions about the dampening effects of national debt on future economic growth.
The Reinhart-Rogoff study quickly became a touchstone of conservative arguments for reduction of federal spending by any possible means or methods, regardless of the impact on the poor, on education, on retirees, and on health care. Krugman was at his curmudgeonly best in last week's retort.
As a Nobel Prize-winning economist, Krugman loves to show over and over again that deficit spending is the salve for reduced demand in times of recession, and that current European experience is proof positive of this principle. This is consistent with not only current experience but also traditional Keynesian economic theory, as near as I can remember from four decades ago when earning my bachelor's degree in economics. Still, Krugman's most recent progressive harrumph left me a little cold.
What we need Krugman and his disciples to address is the real effect of accumulated annual deficits what we call "national debt." The actual numbers are alarming, or should be, no matter which side of the political spectrum one sits on. Our current national debt of $16.8 trillion, at an optimistic and easy-to-compute interest rate of 3 percent, requires annual service of more than $500 billion. That is well over half as much as the entire stimulus package passed in 2009. And this payment on debt service does not go into roads and schools and other public activities and projects. It disappears into the pockets of folks who own the underlying U.S. treasury bills.
It is of some comfort that a bunch of those Treasury bills (53 percent) are held domestically by U.S. citizens, companies and retirement funds. But the rest (47 percent) is owned by foreigners and foreign countries, the two largest owners being China and Japan, which own about $1.1 trillion each. This means about half of the annual debt service which is raised from current U.S. taxpayers or about $250 billion annually will go to paying people and institutions who aren't even here in the U.S., to spend the interest payments which they will receive forever, or at least for as long as the national debt remains at current levels.
This debt burden is real. An annual cost of $500 billion is more than five times larger than the 2013 sequestration, which is already having real repercussions in the economy and the lives of Americans. That annual debt burden $500 billion is fiscal air which will not fill the sails of the U.S. economy in future years. It is a problem which will require long-term planning and persistent execution to fix. We can't wait to start the conversation about a fix until the economic "all clear" on the Great Recession is sounded by the last progressive diehard. We can't make the problem go away by poking fun at a couple of highly intelligent Harvard economists who had a glitch in their Excel spreadsheet.
While we liberal, progressive communitarians strut and fret about the regressive economics of neocon fiscal fanatics and tea party nutcases, we would do well to not lose sight of the troubling truth at the core of their agitation.
Russell C. Fericks is a Salt Lake City attorney with a degree in economics from Claremont McKenna College and a law degree from the University of Utah.