MAKING SENSE -- August 9, 2012 at 10:00 AM EDT
When Will the Deficit Hit $10 Trillion? 2036? 2057? But So What?
Digital composite by Travel Images/UIG via Getty Images.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Thursday's query:
Name: Jack Doyle
Question: How long will it take America to approach a $10 trillion deficit?
Paul Solman: Annual deficit? Well let's see. Starting in 1940, the first year for which I can easily find both nominal and inflation-adjusted numbers, the federal budget deficit was about $3 billion nominal, close to $50 billion in 2012 dollars. This year, the deficit is expected to be $1.3 trillion, nominal and real. That's about 433 times as much nominally over 72 years; 26 times as much in "real" or inflation-adjusted dollars.
You're asking the question in nominal, face-value dollars, Jack. So one way to answer is to calculate the rate of growth over the past 72 years and project it ahead. The nominal rate of growth? Something like 8.7 percent a year. So if today's deficit grows at that rate, it should hit $10 trillion about the time I reach 92 years of age: 2036.
If, however, we project ahead using real dollars for the deficit and the historical rate of growth, 4.6 percent, we won't hit $10 trillion in today's dollars until I hit 113 or the year 2057, whichever comes first. (Readers: please check my numbers.)
Of course, deficits could rise if the economy contracts, and/or tax cuts are extended, and/or Medicare costs keep rising. On the other hand, they could fall if the economy returns to its growth path of the past century or so, and/or taxes rise, etc. That's why I'm just projecting the future on the basis of history.
But a question for you, Jack: So what? One of my mantras that's worth repeating: It's not how much you borrow; it's what you DO with the money. Are we borrowing in order to invest in America's future: physical infrastructure and human capital (education) to make us more competitive?
If not, ought we to be, especially as the interest rates at which we borrow are now lower than they've ever been in the history of the United States? Or are we borrowing so that Americans in high tax brackets can keep more of what they earn and supposedly invest it, thereby creating jobs? Maybe we're just borrowing to keep the economy from tanking, as in 2008. Would any of those be bad reasons to increase the deficit? Just asking.
As usual, look for a second post early this afternoon. And please don't blame us if events or technology overtake us. This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions.