What Is The Cause Of The National Debt?

The national debt has been identified as perhaps the biggest threat facing the future of the United States. Okay, so just what is the cause of the national debt? It certainly seems worth knowing if we are going to fix it.

Multiple Causes

As you can guess, there are many different causes of the national debt. Some constitute one time costs such as paying for a war while others are ongoing costs. Then there is simply the issue of annual budgets that reveal a government living beyond its means and promising more to its people than it can possibly hope to deliver.

The Good Times Problem

Perhaps the biggest problem we face when it comes to the national debt is what I call the good times problem. How could there be a problem in the good times? Well, it is simple. The government creates benefits that are based on the economic and tax revenue numbers being generated that year, but do not take into account changes down the road.

Social Security is a classic example of this in two ways. The first is in relation to the population projections. The program was created before the Baby Boomer generation came into existence. The Baby Boomers constitute a rather large bulge in our population. As they start to retire in mass, they stop contributing funds to Social Security through paychecks and start taking it out as benefits. This creates a drain on the system and 2010 was the first year that the fund started to pay out more than it takes in on a regular basis. In 2011, it is expected to pay out $45 billion more than it takes in, which is a huge number and major addition to the national debt going forward.

Then there is the surplus problem with the program. Social Security gets bashed a lot, but it is actually a very good and very efficient system. In fact, it has brought in more money each year than it has paid out with a few exceptions until 2010. This begs the question of where is all that surplus money? Ready to be enraged? Congress has been taking each year’s surplus and using it to pay the interest on the national debt. In exchange, it gives Social Security what amounts to an “I.O.U”. Social Security now needs the money back and Congress has no way to pay those IOUs without borrowing more money from creditors. This is a double whammy to the national debt.

This is a common problem with what are called entitlement programs. The government promises things like Social Security and Medicare without really being able to pay for them. Once people are used to receiving these benefits, it is nearly impossible politically to pull them back. Instead, we end up paying for them by borrowing from creditors which just cranks up our national debt year after year.

Other Causes

What about other causes? Well, another major cause is simply a government out of control. We currently are running annual deficits of well over a trillion dollars a year. In 2010, for instance, the difference between what was taken in as tax revenue and what was spent was $1.6 trillion. How did we make up the difference? We borrowed it from credits, which added the 1.6 trillion to our national debt. The situation is so out of control that if we just paid for Medicare, Social Security and the military, we would still run an annual deficit and have to borrow money.

And then there is the debt itself. Interest must be paid on it each year. As the total debt figures grow, the interest payments do as well. In 2010, we paid over $400 billion in interest to creditors. That is just interest, not the principle owed on the debt. It is estimated that by the end of this decade, we may be paying well over a trillion dollars if something isn’t done.

What are the causes of the national debt? They can be summed up as poor policy making, running annual deficits and paying interest on the debt itself. While there are many other aspects as well such as paying for a war, these are the primary three problems we must address.

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