Don Cunningham: The Dean’s Lesson on Our National Debt
By Colin McEvoy on May 6, 2019
This column, written by LVEDC President and CEO Don Cunningham, originally appeared in The Morning Call and on the newspaper’s website on May 1, 2019. (Click here to read Cunningham’s previous columns.)
My 28-year-old daughter and I had a fascinating discussion recently on her approach to credit card debt.
It was equal parts brief and instructive.
“Dean, I have a very good credit rating,” she reported, using the title my children bestowed upon me for offering unsolicited lessons and being a royal pain. “I pay the minimum balance on my credit card every month.”
After proper paternal praise, I entered the danger zone, ignoring the lesson I learned during her teenage dating years to not ask questions to which I don’t want answers.
“What’s the balance?” I said, before my brain fully engaged.
Her pause was long.
“The monthly balance?”
“No, the ‘balance-balance,’ the amount you owe,” I said.
“Do you mean on both of them?”
Both of them! This was a bit like not learning it’s twins until entering the delivery room.
My face must have changed. She noticed and shifted tactics.
“It’s high. I don’t want to tell you but don’t worry, I pay the minimum balance every month, so my credit is really good,” she said with the soft voice and doe eyes that has melted me since she could talk.
I backed off the questioning. My brain had awakened, remembering there are things to leave alone.
I did, however, enter full “Dean mode” with an unsolicited lesson on credit card interest rates, compounded interest and the danger of the bank’s minimum payment. I quick ran some numbers.
“Let’s say your balance is $5,000,” I said, closely watching her reaction, hoping it wasn’t higher. “If you pay the minimum $200 a month on a card with an 18.9% interest rate you’ll be paying it for the next 11½ years.”
I had her attention. The hook was landed. It was time to yank the line.
“You’ll be 40 years old when you finish paying,” I said, knowing the thought of that age has a power all its own. “Let’s assume you never charge again, you’ll pay the bank $3,110 in interest, some of it for meals you ate 12 years earlier.”
There was another long pause. She had come ashore. That day, in our kitchen, she cut up both her cards and put them in the trash.
There is no such hope in Washington, D.C.
Interest cost on the national debt is the fastest growing category of the federal budget. In this year’s budget, Americans will spend $389 billion on just debt interest.
Many may shrug and ask, “So what?” We’ve become numb to these large debt numbers. But, if you happen to be one of America’s 141 million individual taxpayers, your hypothetical share of that interest payment is $2,759 — forget about principal.
While we all pay different amounts of federal income tax, and business taxes and other revenues contribute to the budget, individual taxes remain the U.S. budget’s largest source of revenue.
As with my daughter’s credit card, we spend a lot of our taxes paying interest on something that was bought a long time ago, often in a place far away.
There was a time when this concerned some of those elected to govern the country. Now though, sadly, the only issue to bring Washington Democrats and Republicans together seems to be a pact to not mention the national debt or, if so, to declare that it no longer matters, which is even more dangerous.
English lawyer George Carman once said something apropos of our current situation: “He behaved like an ostrich and put his head in the sand, thereby exposing his thinking parts.”
The Republicans once had a lot of fun with the matter, particularly during Democratic administrations. They then decided to cut corporate and individual taxes by $1.5 trillion without reducing spending, tossing any mantle of fiscal responsibility on the ever-growing debt pile.
Democrats are now busy chasing “Medicare for All” and the Green New Deal — a wish list of every progressive idea bundled together in a debt-exploding super charge — so it’s a safe bet they’ll avoid the topic.
“Neither party wants to raise this as an issue,” Mark Dombs of the Peterson Foundation, a nonpartisan organization founded to address America’s long-term fiscal challenges, said at a recent meeting of the International Economic Development Council, which I attended in Washington.
It’s more fun to talk about cutting taxes or creating programs.
The Congressional Budget Office forecasts interest payments to grow rapidly from the $389 billion in 2019 to $914 billion in 2028. The CBO projects net interest costs of nearly $7 trillion during the next decade.
“There’s no situation so bad that it can’t get worse,” British politician Damian Green said in a bit of gallows humor.
He’s right. A school of economic thought has emerged called modern monetary theory. This is brought to you by economists, the same folks who failed to forecast the Great Recession and whose record of predictive ability makes weather forecasters appear clairvoyant.
This theory, in short, holds that debt doesn’t really matter anymore, basically because we’ve had it for a while now and things seem to keep going. It’s a nice fit for everyone from Donald Trump to Bernie Sanders.
Unfortunately, it won’t work for those who pay the bills, particularly the younger generation. More people will retire during the next 30 years than will be added to the workforce, according to the U.S. Census Bureau.
It’s just simple math. Debt and its interest costs will make up so much of the federal budget that we no longer will be able to kick the can down the road.
Unlike my daughter’s credit card debt that may end when she’s 40, this one will last a lifetime for her and her generation.
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