To appreciate the gravity of the skyrocketing federal debt, and how much this year’s elections should focus on a fix,
consider the zinger Gov. Mitch Daniels fielded on his trade mission to China last fall.
Daniels was imploring a major automaker to choose Indiana for its first U.S. office when the chief financial officer dropped this bombshell: The company wouldn’t consider an Indiana office—not because Indiana was a poor place to do business, but because it had no plans to operate in the United States, period.
Europe, not the United States, had the best growth prospects, the official said.
Why? America’s escalating debt.
Not all Chinese business leaders frown on U.S. prospects. As IBJ has reported, Chinese investors are providing badly needed capital.
But the debt clearly is becoming a big problem.
U.S. Sen. Evan Bayh has sounded an alarm for the past couple of years, and said during his retirement announcement Feb. 15 that an impasse over the deficit in the Senate was one reason he could no longer be effective in what once was considered the world’s greatest deliberative body.
The Office of Management and Budget projects federal debt held by the public to shoot from its current level of about 50 percent of gross domestic product to 85 percent of GDP by 2018. And the projection shows no sign of returning to Earth.
To put this in perspective, U.S. debt levels have ranged near 40 percent of GDP since the 1950s. Also, the international standard followed by the European Union and International Monetary Fund is 60 percent of GDP, a level we’re on course to crash through this year or next.
There will be consequences for inaction. Economic growth will slow and living standards will fall as Americans struggle to pay interest on the debt.
Chastened by a string of Republican victories, including Scott Brown’s election to Ted Kennedy’s former Senate seat in Massachusetts, President Obama has returned to talking up fiscal responsibility.
Many economists believe Obama did the right thing by pumping money into the economy to try to prevent a free-fall. But many of the same economists also warn that our free-spending ways cannot continue.
Given the intractable political rancor in Washington, Congress should reconsider handing the problem to an independent commission that can put forth a set of actions. As has been the case in the past with military base closings, Congress should require itself to vote the entire set of actions up or down.
Congress is resisting committing itself to such a commission because it fears it wouldn’t like the recommendations.
As we Hoosiers consider whom to send to Congress this fall, we should ask pointed questions and demand specific answers from candidates. A commitment to fiscal responsibility should trump grand plans that add to the deficit—and to the debt burden we’ll leave behind for our children and those of future generations.•
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