The Debt is Too Damn High — Can We Fix It?

Despite what the government says, the United States' (and world's) economic situation hasn't improved much since 2008. We can see this by looking at the jobs report, but also by looking at public debt figures and taking into account Social Security promises of payment, Medicare, Medicaid, and mortgage guarantees. 

While troubling, this situation shouldn't surprise anyone interested in economics. Since 1965, government spending has almost always exceeded revenues. And since 1901, most of this debt (in real figures) was accumulated under Democratic presidents. The CBO can't seem to see a balanced budget coming in the next 10 years, meaning that the debt-to-GDP ratio could reach 200% by 2037.

What can we do about this? First and most important, there needs to be a very serious questioning of the role of the federal government. So much money could be saved just by respecting the Tenth Amendment, which could tackle the deficit in a jiffy. Yes, that would include eliminating federal loans to students, which is actually one of the main causes of exploding tuition and student debt. Indeed, colleges tend to increase tuition in sync with government help. Many believe that higher education is going to be the next bubble, just as housing was in the first decade of the new century.

Of course, eliminating federally funded student loans is likely to decrease enrollment, as many college students won't be able to afford tuition — in the short run. In the long run, as with every instance of (relatively) free markets, competition will push prices down. Just look at the price of computers, cell phones, and electronics to convince yourself. Eliminating federally funded student loans would also force people to think twice about their careers. Can someone really afford undergraduate or graduate studies if their hopes of repaying their debt are extremely limited? Don't get me wrong: I have nothing against people studying just for the sake of knowledge. However, they don't have a right to use my money to do it. They must assume responsibility for their choices and pay for what they buy.

Don't think I believe that eliminating federally funded student loans will solve all our debt problems, either. I am against absolutely every form of government subsidies, since they always end up disrupting the market, like they did with the recent housing crisis. "You get dollars from pennies," as my grandmother said. With every federal programs that's dismantled, we get more money in our pockets and more freedom to choose our own lifestyles.

And along with the dismantling of the federal Leviathan, all levels of government need to stop protecting businesses from their own incompetence. Capitalism is a kind of survival of the fittest — only the most competent people stay in business while the others fail or have to change their ways. Bailing out any kind of private business is like saying, “Oh, you failed, but that's OK, we have your back.” That's why Chrysler failed twice in less than 30 years, and that's why banks only meet very basic requirements from the Federal Reserve, mainly by maintaining their reserves (the amount of money from the deposits they actually have in their vault) between 0 and 10%. Knowing that you have a guaranteed government bailout encourages risky behaviors that can do massive harm to the economy.

So until the federal government goes back to its original purpose — doing what the Constitution explicitly authorizes it to — there is no end in sight for our spiraling debt. The government will continue spending unconstitutionally and continue to steal more and more of our hard-earned money. And as long as it continues to influence the market by artificially encouraging actions such as spending instead of saving (with near-null interest rates), it will keep undermining the future of our entire generation.