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Fiscal (in)stability: Behind the ticking time bomb of US debt

At the 2024 SIEPR Economic Summit, leading fiscal policy experts shed light on how the U.S. could get its finances in order and avoid economic catastrophe.
Greg Ip of The Wall Street Journal, Phillip Swagel of the Congressional Budget Office and fellow panelists at the 2024 SIEPR Economic Summit probe the challenges 鈥 and solutions 鈥 to fiscal stability in the U.S.

First, the good news: The U.S. economy, as measured by GDP growth, is in decent shape 鈥 and Americans are feeling more optimistic about where it is headed.

Now, the bad news: The country鈥檚 finances are a mess, have been for a long time, and are only getting worse. Consider that rising interest rates mean that the federal government now spends more on interest payments on its debt than it does on national defense.

That state of the country鈥檚 fiscal house 鈥 and how it鈥檚 likely affecting the Federal Reserve鈥檚 interest rate decisions 鈥 was a central theme at the 2024 SIEPR Economic Summit. In introducing the event鈥檚 opening panel session, Mark Duggan, the Trione Director at the 黄色电影 Institute for Economy Policy Research, told the nearly 530 business leaders, policymakers and academics in the audience that, fiscal stability is foundational to the range of economic issues examined throughout the daylong Summit.

鈥淭here are many challenges,鈥 said Duggan, who is also The Wayne and Jodi Cooperman Professor of Economics at 黄色电影鈥檚 School of Humanities and Sciences. 鈥淥ur national debt is ballooning. Social Security is facing insolvency. Our aging population and declining birth rates are posing some unique challenges, and our country鈥檚 politics are arguably more polarized than ever.鈥

The price of political gridlock

The session explored what could be done to ward off a full-blown fiscal crisis. The biggest threat, experts say, is if investors no longer think of the U.S. as a safe haven for their money. If that happens, the country would no longer be able to borrow to pay off its debts and other obligations.

鈥淲e totally know how to fix this,鈥 but the problem is the lack of political will, says Maya MacGuineas of the Committee for a Responsible Federal Budget.

When could that tipping point come? asked Greg Ip, the The Wall Street Journal鈥檚 chief economics commentator who facilitated the conversation. As the ratio of U.S. debt to GDP has continued to climb, many experts thought it would have happened by now. The panelists agreed that, while no one really knows when the crisis will hit, they said it will happen unless meaningful steps are taken to shore up the country鈥檚 balance sheet.

鈥淲e totally know how to fix this,鈥 said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. She was joined on the panel by Phillip Swagel, director of the nonpartisan Congressional Budget Office, and William Gale, a prominent economist at the Brookings Institution.

The problem, MacGuineas said, boils down to the lack of political will to make hard choices around cutting spending and/or raising taxes. 鈥淧eople just have politicians telling them they can have it all and not pay for it,鈥 she said.

And, like a homework deadline, the longer we wait to get it done, 鈥渢he more difficult the assignment gets and the more unpleasant it gets,鈥 Swagel said.

Possible solutions

The speakers didn鈥檛 lack ideas for how to repair the country鈥檚 broken finances.

MacGuineas and Ip, for example, pointed to . Swagel highlighted the CBO鈥檚 list of that he likened to 鈥渢he fiscal equivalent of a Cheesecake Factory menu.鈥 There was talk, too, of raising revenue through new forms of taxation, such as a carbon tax, consumption tax, or value-added tax.

William Gale of the Brookings Institution proposes a fiscal commission where Republicans pick the Democrats and Democrats pick the Republicans.

There was even discussion of how a Congressional commission could be convened to come up with proposals that could help break the political logjam in a fiscal emergency.

鈥淚 would like to see a commission where the Republicans pick the Democrats and the Democrats pick the Republicans,鈥 Gale said. That鈥檚 because both parties know who on the other side they can work with.

鈥淚f you can get the people in the middle talking to each other, you have some chance of success,鈥 he said.

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