A primer on the U.S. national debt

America’s growing national debt threatens the nation’s future, especially that of its younger citizens, but a “toxic” political climate has prevented leaders from taking effective action, a Fortune 500 CEO said here this week.

“My generation has done you a huge disservice, and you don’t even know it,” Paul Stebbins, 58, the executive chairman and CEO of World Fuel Services Corp., told an audience of 300 that was composed mostly of undergraduate students.

“The national debt is squeezing our ability to pay for education, infrastructure, the military and research and development. In the debate over what to do about this, you have the most at stake.”

Stebbins’ address, titled “Occupy America: Taking Back Your Future in an Age of National Debt and Political Dysfunction,” was part of the William N. Segal and Andrew Segal Distinguished Lecture Series. It was sponsored by the department of accounting in the College of Business and Economics.

The nation’s net national debt—the amount of money the U.S. government owes its creditors—stands at $12 trillion, said Stebbins.

“That amounts to $1 per second for 397,000 years,” he said.

The dangers of a high debt-to-GDP ratio

The ratio of national debt to America’s annual gross domestic product (GDP) is 72 percent, said Stebbins, compared to a historical average of 38 percent and a ratio of 35 percent as recently as 2007.

If present trends continue, said Stebbins, the debt-to-GDP ratio could reach 100 percent in a decade and 200 percent by 2050.

“It matters that China, Japan and other nations own a large portion of our debt,” said Stebbins, “because debt is a cancer that threatens wages, jobs, productivity and GDP. It squeezes people who need to borrow money for student loans, to start up a business or take out a mortgage.”

In addition, said Stebbins, the national debt threatens to put the U.S. in the same situation as Greece, where debt-to-GDP ratio reached 154 percent, making it impossible for that nation to pay its creditors and causing interest and unemployment rates to soar.

“Greece is a relatively small country,” he said. “The U.S., by contrast, accounts for 24 percent of the world’s total GDP. We are the main driver of the world’s economy. The interrelationship between our economy and the other economies in the world is extremely important.”

Stebbins listed four chief causes of the growth in the nation’s debt: the tax cuts enacted by Congress in the early 2000s, the cost of the wars in Iraq and Afghanistan, the Great Recession that began in 2008, and the “exponential” growth in federal spending on Medicare, Medicaid, Social Security and other “nondiscretionary” spending.

A stark warning to young workers

The nation’s aging population, he said, will exacerbate that trend as growing numbers of workers retire and enroll in Social Security and Medicare.

When Social Security was passed by Congress and signed into law by President Franklin D. Roosevelt in 1936, said Stebbins, the age of retirement was set at 65. The ratio of workers contributing money into the program to retirees drawing out benefits was 16:1. It fell to 5:1 by 1960 and to 3:1 by 2013 and is on pace to reach 2:1 by 2035.

“We know this,” said Stebbins. “The politicians in Washington, D.C., know this. But no one wants to do anything about it. Anyone who tries is accused of wanting to throw Grandma into the snow.

“But doing nothing guarantees that the Social Security Disability Insurance Trust Fund will be insolvent by 2016 and the entire Social Security system will be insolvent by 2033.

“You guys are not going to see any Social Security benefits.”

In addition to the growing national debt and the aging population, said Stebbins said, many analysts are predicting that interest rates, now at a historic low, will rise, causing interest payments on the national debt to more than double in the next four years.
 

Political “dysfunction” has crippled the nation’s ability to meet these challenges, Stebbins said. He attributed that dysfunction to the decline in influence of moderate elements of the two major political parties and to the growing power of what he called “extreme” elements of both parties.

At the same time, he said, political action committees (PACs) pour “hundreds of millions of dollars” into primary election campaigns, while gerrymandering has created “safe” Republican and Democratic congressional districts.

“As a result, more ideologues are being elected in both parties. In their orthodoxy, they look a lot like ISIS [the terrorist group known as the Islamic State of Iraq and Syria, and also as the Islamic State]. They are fanatical, insistent, pure and uncompromising.

“This highly toxic, ideologically driven process of government makes it impossible to get things done.”

Stebbins urged his audience to become involved in government by educating themselves about the issues and contacting their elected representatives. Twitter and other forms of social media could be effective tools for making one’s voice heard.

“We have ceased to function as a government because we can’t have a conversation,” Stebbins said. “All of you need to think about this as you become leaders of the world. We must be responsible for the future. Advocacy is no substitute for governance.”

The Andrew P. Segal ‘67 Distinguished Accounting Speaker Series was established in 2003 by William N. Segal and Andrew P. Segal ’67 to invite leaders in the accounting profession to campus to discuss current topics and interact with students and faculty. Stebbins was invited by Parveen P. Gupta, the Clayton Distinguished Professor of Accounting and chair of the department.  

“We could not have picked a better day to host this lecture,” Gupta said in while introducing the Segal Distinguished Lecture Series and the topic of the lecture. “Today is November 4 and America is voting. If the balance of power shifts in Congress tonight, it will be a verdict by the voters that they are fed-up with political dysfunction in Washington, D.C.”

Stebbins was introduced by Georgette Chapman Phillips, the Kevin L. and Lisa A. Clayton Dean of the College of Business and Economics.

“The Segal Speaker Series helps remind us that before we decide, before we form our opinions, it’s very important to understand the issues and the circumstances surrounding the issues,” said Phillips.

Stebbins is a former member of the Business Round Table, an association of CEOs of major U.S. companies. He is currently a member of the Leadership Council of the “Fix the Debt” campaign of the Committee for a Responsible Federal Budget and a member of the Energy Security Leadership Council of S.A.F.E. (Securing America’s Future Energy).

Story by Kurt Pfitzer


Photo by Sarah Barnett