Sunday, May 2, 2010

The Trillion-Dollar Bill, Part I

Our national debt is $12.8 trillion. It's hard to comprehend how much money this is, and we rarely consider how this massive debt impacts our personal lives.

The following comparisons help to reveal the magnitude of our debt:

Trillions are way more than millions. Consider that a million seconds is under 12 days, but a trillion seconds is over 30,000 years.

Imagine the combined annual salary of all professional athletes. It would take 1200 years' worth of that salary to pay off our national debt.1

The government will add $1.5 trillion to our national debt this year, which translates to adding $3 million of debt every minute...

National debt grows when the federal government borrows money. Government money comes either from borrowing, printing, or taxing, so any borrowed money must be returned by printing or taxing. Printing money is perhaps the worst possible form of taxation,2 so the best method for returning borrowed money is direct taxation. This means that our national debt is really the amount of money that taxpayers owe.

The taxpayers who pay back the money our government has borrowed are unlikely to even benefit from that borrowed money. To see this, consider that the larger our national debt becomes, the longer it will take to pay it off. A longer period of time between borrowing and taxpayer repayment makes it less likely that the borrowed money was spent in a way that will help the eventual taxpayer. As a result, our gigantic national debt leaves us with a heavy tax burden without giving us much in return.

Our $12.8 trillion debt also means that our government is now spending $400 billion every year on interest. Interest is the cost of borrowing money, so $400 billion is the yearly cost of having such a large debt. Without this debt, those billions of dollars could be used to pay for our current needs! For instance, $400 billion a year is enough to provide private health insurance for all uninsured Americans.3

The costly consequences of our national debt are often unseen, but that doesn't make the debt any less detrimental to us and future generations. My next post will discuss the important process of digging out of debt.

1. This year's combined payroll for all professional football, basketball, baseball, and hockey teams is $9.8 billion.
2. Henry Hazlitt. Economics In One Lesson, pg. 161: "Inflation itself is a form of taxation. It is perhaps the worst possible form, which usually bears hardest on those least able to pay."
3. The average cost of individual health insurance is $4824 a year. Assuming that there are 46 million uninsured Americans, it would cost $222 billion a year to provide insurance for all uninsured Americans.