Debbie Gibbs: A healthy economy, really?
The news media and president gush about our great economy with low unemployment and a rising stock market. But these measures are like evaluating a sick patient only by her temperature.
Let’s explore our economic vitals a little further.
Unemployment is low, but this statistic mixes full time workers with temporary or part time who want more hours and some benefits. And, only half of the population holds any stocks.
Possibly a more representative measure is the ratio of federal debt compared to Gross Domestic Product (GDP), that is, the nation’s accumulated debt compared to its annual production of goods and services.
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Generally, in good years the debt to GDP is low, in the past from 30% to 70%. In war or recession, the debt is usually a larger percent of GDP as we borrow to finance war or support the economy. In the war years of 1945-1947, the debt to GDP was over 100% and but it quickly moderated.
It is troubling that since 2012, debt to GDP is 99% or above, with today’s total federal debt of $23.2 trillion an all-time high. If our economy is great, wouldn’t you expect to see less debt to GDP than in the World War II years? Instead, the Federal Reserve is printing billions of dollars and keeping interest rates low.
Low interest benefits some businesses that borrow cheap money while using profits to reward shareholders and executives. Paradoxically, low interest rates don’t equate to low rates on consumer credit card debt. With credit card rates averaging +16% it appears that banks view businesses as a better bet to repay debts than consumers.
We’re told consumer confidence is high and families feel optimistic about their financial future. But total U.S. household debt, including mortgages, auto and student loans, and credit cards, climbed to $13.95 trillion in third quarter of 2019. This is $1.28 trillion higher than the debt level at the height of the 2008 great recession. The average American now has about $38,000 in personal debt, excluding home mortgages. And student debt has climbed to $1.4 trillion, second only to mortgage debt.
While home mortgage rates are still low, the inflation in housing prices has exploded. Many first-time buyers cannot afford to buy. But real estate investors can buy investment property. Perhaps the rest of us can settle to at least have a place to rent, while investors get a steady stream of income from more renters.
How about savings? In the 1970s Americans saved about 10% of after-tax income. By 2012, the savings rate was down to 4%. Given the paltry interest rates of savings accounts, not surprising, but distressing for fixed income households needing a safe place for investments to cover emergencies like medical bills not covered by their insurance.
Returning to government, are there ways to reduce the federal debt? The nonpartisan Congressional Budget office reports that in 2018, Mandatory spending for Medicare and Social Security was $1.7 trillion of the total $2.5 trillion in expenses. Incidentally, it’s also “mandatory” that we pay into these systems through payroll deductions. Hence, we get back a portion of our investment.
Discretionary spending was $1.3 trillion and defense got about half. Environment, education, agriculture, transportation, housing, etc., got the other half. Do we need close to $1 trillion for defense? Is our country safer with a healthy, smart and happy population or a large military with oodles of weapons to use overseas? Should we worry more about paying for our insulin or encountering an ISIS terrorist in the grocery store?
For our vast wealth, we live with increasing scarcity and fear. Emotions run high. It’s time to focus on facts, ask questions, and trust our common sense. We expect the government to provide services that we, as individuals, cannot obtain due to our lack of expertise, opportunity or time, or for reasons of economy of scale. Government must ensure that our economy provides citizens an equitable platform to exchange our services for what we need.
So, do we have a healthy economy, or a house of cards supported by a mountain of debt? Election year 2020 is a turning point. At risk is our health care, climate crisis, infrastructure, and income inequality.
We must get it right by electing leaders with integrity and the vision to deliver solutions, fast, that will benefit all of the people and create the America we want to be.
Debbie Gibbs lives in Nevada City.
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