Young Americans strongly support protecting the environment, because of concerns about the future state of the planet. However, they also support policies that are pushing the government toward bankruptcy, such as student loan forgiveness and the current fiscal stimulus, demonstrating a disregard for the future state of the economy. US President Joe Biden must stop indulging this cocktail of environmental literacy and economic illiteracy.
In 2009, the US Government Accountability Office described the country’s fiscal path as “unsustainable”. In the 12 years that have passed since the report’s publication, the fiscal situation has gotten worse.
The US national debt is 130 percent of GDP, having recently blown past the previous high of 120 percent registered during World War II. It is twice the recommended level (65 percent) for fiscal stability set by the European countries when the euro launched in 1999, and amounts to a debt of over $200,000 per taxpayer. A combination of Trump’s 2018 tax cuts, Covid-19, and Biden’s own spending plans mean that the national debt is going in the wrong direction: in 2019, the fiscal deficit was 4.6 percent of GDP, rising to 15 percent of GDP in 2020, and is expected to be 10 percent of GDP in 2021.
During his election campaign, Biden’s manifesto included pledges to increase government spending in many areas, including health, education, and the environment, with the aim of funding these programs with higher taxes on the rich. Since assuming office, new, more extravagant spending plans have emerged, and we are hearing less and less about how he intends to fund them.
Does the fact that the US rapidly settled its wartime debts give us cause for confidence? Absolutely not, because background conditions have deteriorated significantly during the last 75 years, with no signs of abatement.
First, high debt during wars is acceptable because it is temporary, armament-related surge in spending that causes it. Once the conflict concludes, state finances automatically improve since there is no need to pay for weapons, munitions, and soldiers. In its 1944 budget, the US government’s total expenditure was $104 billion, of which $97 billion went on “war activities”.
However in 2021, the US’ fiscal deficit is driven by factors that will persist, and are likely to get worse: Medicare accounts for 15 percent; social security for 14 percent; income security for 14 percent, and health 11 percent. People are getting older and living longer, meaning a growing burden of health and retirement spending, while falling birthrates mean that tax revenues are not keeping up.
National defense accounts for 16 percent of expenditure, so even an unlikely halving of military spending leaves the budget in the red. Moreover, Biden is no pacifist, having supported several financially burdensome military activities including the 2003 invasion of Iraq.
Second, in the wake of World War II, the US economy embarked upon a golden period of economic prosperity, driven by innovation coupled with high levels of government investment. This led to productivity growth of 2.8 percent annually during 1947-1973. However, for many reasons, the growth of US productivity has retreated to 1.5 percent annually during 2007-2020, and further stagnation is expected. Unlike the past, the US cannot rely on economic growth to bring its public debt down to more manageable levels.
It is worth emphasizing that a sovereign default would be catastrophic for the economy. The US has always settled its debts, and its hard-earned reputation as a reliable borrower makes it one of the most attractive destinations for global capital. Countries that defaulted, such as Argentina and Greece, went on to experience protracted economic crises that they have arguably never recovered from. In the case of the US, a deep financial crisis would be the tip of the iceberg.
Why is Biden seemingly ignoring this problem? Ironically, for exactly the same reasons that many policymakers ignore the environmental problems that Biden seems very willing to confront. The simplest reason is that while the US is approaching a fiscal cliff, it isn’t quite there yet, and so it is future generations – and not current ones – that will really suffer the consequences.
Sadly for the young, their influence on policy is very limited, and so to politicians, kicking the fiscal can down the road is irresistible.
Beyond this, unlike environmentalism, there is no mass movement warning about the dangers of fiscal imprudence. This is partly due to the economic woes precipitated by a sovereign default. They are much less visceral than the planetary damage brought about by global warming, and brought to life in Hollywood blockbuster movies such as “The Day After Tomorrow”. There is no fiscal analogue to Greta Thunberg.
Yet it is also the result of poor leadership by many advocates of fiscal sustainability. In the US, those calling for a balanced budget when out of power are often found causing epic budget deficits when in power. Ordinary voters then perceive fiscal prudence as a political red herring.
Biden must stop perpetuating the illusion that protecting the environment, and dishing out government freebies can happen without painful and sustained sacrifices in living standards for all. It is time for young Americans to grow up and realize that safeguarding their future will take more than a hefty tax on Jeff Bezos.