I am, in my heart, a Keynesian. John Maynard Keynes did show that during bad economic times, a nation could and should borrow to stimulate the economy. It worked and helped America recover from the Great Depression in the 1930s. It became conventional wisdom: Both Milton Friedman and Richard Nixon famously observed, to the shock of many, “We are all Keynesians now.”
But debt is a form of economic cocaine. Nations get addicted to borrowing, and if a little borrowing was a good thing, then it was reasoned that a lot of borrowing would be even better. Borrowing became the norm in federal budgeting, and America has only balanced its federal budget eight times in the last 77 years.
Whether Democrats or Republicans were in power, they ran deficits. Too often forgotten,however was that Keynes urged borrowing during bad times to stimulate the economy, but paying back the borrowing during good times. Keynes never envisaged endless borrowing, but American public policymakers seemed to forget the “paying back” part of the equation.
Consequently, year after year, relentlessly, the U.S. debt grew, and the growth of the debt far exceeded the growth in the economy.
The currently formal federal debt of $16.8 trillion, gargantuan as it is, is a fraudulent figure because it does not include the “unfunded liabilities,” i.e., the promises my generation has made and put on our children’s credit cards but kept off the nation’s books. When we add up all the off-book promises we have made to the elderly, veterans, federal workers, etc., the actual debt we are leaving our children is at least $100 trillion, and some estimate it to be $200 trillion.
It is hard to write a scenario where a debt that size could ever be paid off. My generation of politicians has relentlessly and quietly encumbered the nation’s future and pre-spent our children’s earnings. We have also, tragically, locked in an economic crisis in our future.
The dilemma isn’t that Keynes was wrong, but that the American political system doesn’t have the self-discipline to pay down the debt when good times return. What was supposed to be temporary borrowing to stimulate the economy during bad times has become a standard practice of both political parties. Borrowing first became a useful tool, then a habit, then an institution, and now a time bomb.
There is no practical way we can pay for the promises we have made. We have made a Faustian bargain that will soon come back to haunt us.
We are now borrowing 41 cents of every federal dollar we spend and yet there are voices saying we should borrow more to “stimulate the economy.” Not entirely unreasonable, as it worked in every decade of my 70 years. That is the trap. You win the Nobel Prize for expounding loudly that this borrowing can continue and history seems to be on your side.
But it can’t continue. Never in history has a society so imposed itself on its children and grandchildren. Has there ever been a time in history when debt has no consequences? What nation has ever borrowed its way to prosperity? Debt must be paid, defaulted upon, or kicked on down the road. If kicked down the road, it can only be kicked so far.
I fear that America lacks the political backbone and civic discipline to follow the second indispensible part of a Keynesian plan, that debt borrowed during hard times must be paid back during good times. History does not treat kindly nations that ignore fiscal discipline. Keynes’ dream, incorrectly applied, can become a nightmare.
Richard D. Lamm is former governor of Colorado and a professor at the University of Denver. This op-ed originally appeared in the Denver Post