A Stealth Tax on Prosperity

Key Points

  • Rising budget deficits over the past 50 years have crowded out saving, diminished investment, and depressed growth of our standard of living.

  • If the US adopts European levels of government spending, we will drift toward an anemic European growth rate.

  • Necessary fiscal reform is economically easy but politically difficult.

While governments responsibly issue debt to fund public investment and dampen the business cycle, the US federal government has borrowed at an increasingly prolificate pace over recent decades. History teaches that excessive government debt leads to sovereign debt crises, causing currency devaluation, hyperinflation, financial repression, and outright default.

federal debt

With the world’s largest economy and primary reserve currency, we may be less vulnerable than other countries, but we are naïve to assume we’re immune. Even if we avoid a crisis, rising debt and deficits crowd out saving and investment, diminish growth, and depress our prosperity.