Maintaining an accurate balance sheet is something that all good businesses do. A simple list of your assets and your liabilities is an important way to determine whether you’re on track to success or seconds away from financial catastrophe. When liabilities start to exceed assets, it’s time for a course correction. If the problem gets worse, you’d better dramatically rethink your life choices. If it gets worse still, you’re looking at bankruptcy and potentially prison.
If you’re the government, though, things are a little different. With no profit motive, no shareholders, no competitors, and the ability to extract revenue from the population by force, government has very little reason to keep costs down and its books in order.
The extent of this discrepancy is not often talked about or understood, which is why we’ve tapped the extraordinary mind of Conservative Review’s own John Gray to crunch the numbers for us. It was no easy task, he whined, but we told him to get back to work or else we’d make him go work for Donald Trump. (Editor’s Note: John Gray was working on this research and is currently serving at the Office of Management and Budget. CR wishes him well and asks that he fight for solvency in our fiscal future.)
Here is what he found: In 2015, the federal government had assets of $3.2 trillion, including cash, property, equipment, investments, and loans. That sounds like a lot of money, and indeed it is. With that kind of bankroll, you wouldn’t think “living within your means” would be no challenge.
Sadly, government doesn’t even come close. Outstanding liabilities for the year 2015 total over $90 trillion, including the national debt, unfunded Social Security and Medicare liabilities, benefits, and loan guarantees. That’s a staggering, astounding number. It’s a number so large that human minds are incapable of conceiving it. Written out, it’s $90,000,000,000,000, with an unlucky 13 zeros. It’s enough money to give everyone on the planet $12,000. If every dollar were a grain of sand, it would be enough to fill an Olympic swimming pool. Do you get it yet? It’s a lot of money, money we don’t have, money we owe people. And that’s only looking at one year.
Some of you might be saying, so what? Why is this a problem? Well, think about it in terms of your own household. How much is everything you own worth? Go ahead, add it all up. I’ll wait. Got a number? Good, now multiply it by thirty and imagine you owe that much this year, and that you will owe even more than that every year for the foreseeable future. That’s an impossible debt to pay off.
If you’re an individual with that kind of burden, you’re lucky. You’ll die someday and all your troubles will be over. Not so for the government, which continues to pass down its obligations to new generations. But sooner or later that debt will come due and it will be time to pay the piper. What happens then? We could default, of course, simply refusing to pay what we owe. In that case, not only would our credibility in world markets be destroyed — crashing our economy and forever ending our ability to borrow in time of need, as well as possibly starting a war — but default would also screw over millions of Americans who were promised Social Security, pensions, and Medicare payments. Having income you’ve been counting on ripped out from under your feet can be ruinous. Obviously, this is not a desirable outcome.
An honest look at the federal government’s balance sheet is a sobering experience.
So default is out; what’s the other option? Turns out, it’s even worse. Government is in a unique position because, unlike the rest of us, when it needs money for something, it can simply print more. I say “can”, but that definitely doesn’t mean “should”. This has happened before, and with catastrophic results. When governments try to print their way out of debt, you get what’s known as hyperinflation. The value of money plummets so fast that it becomes essentially worthless. When there are more dollar bills floating around than leaves on trees, they assume about the same amount of value. You’ve probably heard stories from East Germany or Zimbabwe, where hyperinflation was so bad that people had to drag wheelbarrows of money to the store to buy a loaf of bread. These are not an exaggeration. It happens, and it destroys economies.
In short, if government doesn’t start acting to rein in its liabilities, the only foreseeable endgame is economic disaster, a disaster that will make the Great Recession look like the dot com boom.
An honest look at the federal government’s balance sheet is a sobering experience. It’s a reminder that we need to act to rein in the size of government sooner, not later. There are many things the Congress does to hurt Americans, but none poses so predictable and existential a threat to our long-term peace and prosperity as the refusal to address out of control spending in a meaningful way.
Logan Albright is a researcher for Conservative Review and Director of Research for Free the People. You can follow him on Twitter @loganalbright73.