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Negative effects of the higher national debt on long term economic growth

Posted: February 28, 2013 - 1:10am

Today I opened the Juneau Empire to yet another article on the potential effects of “sequestration,” that is, across the board federal spending cuts, on Alaska. The discussion focused only on what borrowed dollars will not be spent and on which federal programs. Absent from this article, and most other recent news reporting on the subject, is the negative effects of an increase in our national debt on our long-term economic growth.

The point is simple. “Oh my fur and whiskers,” a few millions more borrowed dollars will not be spent. No question, we will all suffer a little now. Some of our non-combat civilian Department of Defense employees may be furloughed a day a week. Maybe a few less drones will fly. Maybe a few less airport security folks will grope at us during our travels. Maybe a few less teachers, a few less police, a bit less unemployment benefits paid. Yes, indiscriminate spending reductions are not the best way to do it. Moreover, reduced federal spending now will affect us all.

That is the bad news. But what is the good news? Reduced federal spending and borrowing will also benefit us — not now, but in the future. Less debt means less future debt service and interest; more money for investment and spending in the future. Huh! Delayed gratification. You’ve read about those childhood psychology studies, the ones that prove that kids who are willing to wait for two pieces of candy at the end of the week fair way better in life academically and economically than those who take the one piece today. Well, guess what, the same is true for a society as a whole. We and our children will experience far better economic growth in the future if we reduce deficit spending now and pay better attention to our national debt.

Chuck Cohen

Juneau

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