Sources of the debt problem
Recently the national debt as a percentage of annual national income reached 100 percent. It’s the first time since World War II that it has been this high. Why has it increased so much? N.C. State University economist Mike Walden answers.
“One hundred percent of debt is 100 percent of national income. We also call that gross domestic product. In 1980, it was 35 percent. So, the relative size of the debt has tripled over that time period, and, yeah, people are asking why. Well, we want to look at spending and taxes. On the spending side at the federal level – and we’re going to confine ourselves at the federal level – we see the biggest increases in programs like Social Security, Medicare, Medicaid. They have all jumped 50 percent relative to the size of the economy since 1980.
“Now defense spending today as a percent of the economy is actually lower than in 1980, but it’s actually up two-thirds since the year 2000. And then recently spending on safety-net programs has obviously jumped during the recession.
“On the tax side, tax revenue as a percent of the economy is about 30 percent lower than it was in 1980.
“Now the question you have to ask is, are these changes a permanent? Or are they temporary? And in particular, are they a result of the recession?
“I think that the increased spending on safety-net programs is probably temporary. Economists do debate how much of the reduction in taxes is temporary or permanent. I think one area that we do feel is permanent is the increased spending on Social Security and Medicare and Medicaid.
“So these are all issues. These are all facts that have to be taken into account when we do debate how to reduce down the road that relative size of our national debt.”
Category: Economic Perspective