Abandon ‘the Children’
We need a better argument against the massive federal debt
Feb 11, 2013, Vol. 18, No. 21 • By MEGHAN CLYNE
Credit card borrowing will be particularly painful for this generation of Americans. Unlike mortgages, which usually have fixed interest rates, credit cards tend to offer variable rates—meaning rising borrowing costs will be felt immediately by consumers. As a new study by Sarah Jiang of Capital One Financial and Lucia Dunn of Ohio State University explains, credit card debt generally increases when borrowers are younger, peaking around age 55. Jiang and Dunn also find that Americans born in the 1980s—people now in their 20s and early 30s—carry more credit card debt than their parents and grandparents did at the same age and pay it off much more slowly. Today’s Visa swiping young Americans will likely carry their heaviest credit card burdens precisely in the years when our government’s debts spiral out of control. Should a crisis drive up interest rates, Dunn says, today’s twentysomethings “would be very hard hit.”
In general, the Survey of Consumer Finances finds that total indebtedness peaks among households headed by Americans in the 40-49 age bracket. Today’s 20-year-old enters that range in 2033, the year in which Social Security is projected to go bankrupt and in which the national debt held by the public is projected to reach 165 percent of GDP. He exits that prime borrowing cohort in 2043—the year for which the CBO stops making specific projections because its model cannot handle debt that exceeds 250 percent of GDP. When politicians tell the nation, including young voters, that the consequences of government’s reckless borrowing will be borne by “our children and grandchildren,” they’re peddling a dangerous deception. If you’re alive and working now, youwill bear those consequences.
This is especially true considering that today’s younger Americans may face the other grave danger of high debt—economic stagnation—even sooner. Americans save only so much money; as the CBO explained in a 2010 report, under “persistent deficits and continually mounting debt . . . a growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that ‘crowding out’ of investment would lead to lower output and incomes than would otherwise occur.” Also in 2010, economists Carmen Reinhart and Kenneth Rogoff tried to quantify the relationship between government debt and GDP growth, finding that the economic harms in advanced countries become noticeable when gross debt (debt held by the public in addition to the money the government owes itself) exceeds 90 percent of GDP. The United States passed that threshold in 2010; last year, the gross debt figure stood at 104.8 percent.
If growing debts prolong our economic stagnation—extending today’s high unemployment, suppressed wages, and anemic growth—the results could be devastating for today’s younger Americans. There are the stories of college graduates who can’t find jobs and of young adults returning to live with mom and dad, and there are the numbers: Last month’s unemployment rate for Americans between the ages of 20 and 24 was 14.2 percent,much higher than the national average of 7.9 percent. As debt rises indefinitely, Americans in their late teens and 20s could experience a “lost decade” like the one that harmed so many young people in Japan. Researchers have observed that most wage growth and job mobility happen in the first 10 years of a person’s career; for young people now in that crucial stretch, years of debt-induced economic languor (not to mention recession) could be poisonous to their lifetime earning prospects.
Some, of course, will deny the imminence of debt “doom and gloom.” Interest rates, for instance, are at rock bottom and are expected to remain there. But this is only a temporary condition, resulting from the Federal Reserve’s commitment to keep rates low until hiring picks up and from the fact that, while U.S. debt is growing fast, many other industrialized countries are in worse shape. A debt crisis, however, would take the power to control interest rates out of the Fed’s hands. And it would be the definition of hubris to assume that no other country will emerge as a promising investment prospect in the next two decades.
All of this adds up to a dire warning that should be heeded above all by the young Americans whose aspirations are most likely to be crushed by our fiscal mismanagement. But it is unlikely to be, as long as our politicians insist that the reason to control our debt is our “children and grandchildren.” This throwaway line may appeal to older Americans, but they already vote for candidates who promise to cut spending and reform entitlements. It now desperately needs to be supplemented with an honest, fact-based argument aimed at the self-interest of younger voters.
There is no shame in appeals to self-interest, as our greatest political rhetorician understood. Invited to address a temperance society in 1842 about how to make its appeals more effective, Abraham Lincoln advised his listeners to speak less about the distant future and more about today. “Posterity has done nothing for us,” he said. “And theorize on it as we may, practically we shall do very little for it unless we are made to think we are at the same time doing something for ourselves.” Today’s fiscal hawks could use that advice.
Meghan Clyne is managing editor of National Affairs.