The Roman historian Livy famously described the terminal plight
of the late Roman Republic: "Nec vitia nostra nec remedia pati possumus"
("We can bear neither our shortcomings nor the remedies for them"). As I
reread this phrase in Christian Meier's biography of Julius Caesar this past
weekend, I couldn't help thinking of America's current fiscal profligacy
which has been growing for years at an ever-accelerating rate.
Of course, since last fall's financial/economic crisis, the rate
of profligacy has become supercharged. Like the Roman Republic's lament, we
think we can't survive without deficit spending but we soon won't be able
to survive with deficit spending, either.
In 2012, federal debt will be more than $15 trillion. Annual
interest probably will be between $1 trillion and $1.7 trillion depending
on whether long bonds remain at about 3.5 percent or go to recent historic
rates (6 to 7 percent). Deficits will average about $1 trillion a year
$22 trillion by 2019. Yearly interest payments then will be more than $2
trillion. That's the good news.
That assumes the world will continue to buy our Treasury notes
at plausible rates. We had a slight foretaste of the future last week, when
10-year U.S. Treasury bond yields shot up 60 basis points on soft demand and
a Standard & Poor's warning of a possible ratings downgrade of British
bonds. The bond market may well rebel ultimately against our government's
excessive borrowing and spending (insufficiently supported by adequate
national economic strength).
The "good news" of only $22 trillion in debt supported by
purchasable bonds also assumes that our economy will recover this year and
that we then will have continued steady economic growth. Of course, the more
the government borrows the less will be available for the private sector
(the part of the economy that produces things). And the less available
borrowing there is for investment and consumption in the economy the slower
the economy will grow if it grows at all.
But the not-so-good news on top of this astounding and growing
indebtedness is that we will have to borrow even vastly more than the
current budgets propose. Starting in 2017 (just eight years from now), the
Medicare trust fund will be depleted. We then will begin to experience a
Medicare revenue shortfall that ultimately will total between $35 trillion
and $40 trillion during the following 60 years. Social Security's depletion
will begin 20 years later and will have a shortfall of a little less than
$10 trillion during the same period.
Oh, and the current budget projects that defense spending will
decrease as a percentage of the federal budget. While the overall budget is
slated to grow 75 percent during the next decade, defense is to grow just 17
percent. Only imminent and eternal peace would permit such low defense
expenditures. The administration's health plans also will add a currently
unfunded $1.5 trillion per decade.
Not only does continued, increased government borrowing ever
more sap our economy but also, as the baby boomers retire, we will move from
the recent statistic of four workers for each retiree to two workers for
each retiree. That means a weaker economy, as this smaller work force will
not produce enough to support all of government's costs even with massive
and persistent tax increases. And if, as seems possible, sometime in the
next decade the world resists lending our government sufficient money
(because our economy will be too small to produce enough to pay the
ever-growing interest on the debt), then we finally will be forced to make
choices of what to buy and what to forgo. Maybe only subsidized pain pills
rather than medical treatment for old people? Only 50 percent payment of
Social Security benefits? Default on federal debt payments? Or what the
Chinese already are worried about: monetizing the debt, leading to
But the Roman Republic's experience hints at an even more
profound danger. The political tasks flowing from the growing demands of the
republic's empire were of a magnitude and type that could not be managed by
its form of government. However, the Roman Republic was prepared neither to
give up its growing empire nor to modify its government to deal with such
Similarly, for the United States today, we are not prepared to
forgo what all this soon-to-be-unavailable deficit spending can buy us
(health care, bank bailouts, defense spending, food stamps, etc.). Nor can
our governments (and the publics who elect them) stop the spending.
In Rome, eventually a contradiction arose between Romans'
concern for the tasks that needed to be performed and their concern for
their form of government. The contradiction was resolved and the problems
solved at the price of their republic: Came Gaius Julius Caesar.
Surely (presumably?), for the next decade, the United States
will bungle onward with both our form of government and our deficit
spending. But sometime soon after 2017, when Medicare's trust fund will
begin to be depleted (or earlier, if the world stops buying our bonds), the
shocking reality of being forced to do without borrowing will shape and
probably misshape both our way of life and our form of governance.