Ex-Fed Chair Speaks Up
Having been in the highest echelons of government during several economic crises, Paul Volcker and Peter Peterson are eminently qualified to critique the current election. (Source: “Ignoring the Debt Problem,” The New York Times, October 21, 2016.)
They have 179 years of life experience between them, not to mention that they have served presidents of both major political parties. In other words, Volcker and Peterson don’t have an ideological stake in the outcome of the election; they are technocrats who care about data.
Advertisement
However, their allegiance to empiricism is now giving them reason to worry about the United States’ growing pile of debt. In particular, they worry that neither Donald Trump nor Hillary Clinton is paying enough attention to what they see as a catastrophe for the U.S. economy.
“The deficit has grown sharply this year, and will keep the national debt at about 75 percent of the gross domestic product, a ratio not seen since 1950, after the budget ballooned during World War II,” write Volcker and Peterson. “The widely respected Congressional Budget Office has estimated that by midcentury our debt will rise to 140 percent of G.D.P.”
But of course, none of these facts have made their way to the campaign trail.
“Throughout the campaign, Donald J. Trump has called for a combination of deep tax cuts that appear to far exceed proposed spending reductions, at the clear risk of substantially increasing the ratio of debt to G.D.P.,” Volcker and Peterson continue. “Hillary Clinton has set out more balanced and detailed proposals, but they would still fail to stabilize and reduce our debt burden.”
The most damning part of Volcker and Peterson’s analysis is that a prolonged state of low interest rates has made the federal government’s financial positions appear more secure than they truly are.
Once interests normalize, most of today’s spending priorities would take a back seat to interest payments. The United States government, by this accounting, would be sucked into a vortex of debt that could undermine its ability to invest in infrastructure or defense.
“Our current debt may be manageable at a time of unprecedentedly low interest rates,” warn Volcker and Peterson. “But if we let our debt grow, and interest rates normalize, the interest burden alone would choke our budget and squeeze out other essential spending.”
