President Obama signed a bill Wednesday night to end the 16-day government shutdown and avert a default by raising the federal debt limit. The bill, which passed in the House by a margin of 285-144 and in the Senate by a vote of 81-18, will continue to fund the federal government through Jan. 15.
The legislation, while reopening the government and temporarily raising the debt ceiling, does little to deal with the deeper underlying issues facing America’s economy, namely a national debt approaching $17 trillion, the rising cost of entitlement expenses and a divided Congress that continues to struggle to work together.
“The primary reason for our debt is pretty simple,” Economics professor Andrew Pieper said. “We want programs that we aren’t willing to pay for.”
The federal government spends the majority of its tax revenue on entitlement programs like Social Security, Medicare and Medicaid, which account for more than 60 percent of the budget, said Economics professor Don Sabbarese.
“If the federal government does not address the growing entitlement expenses, the federal debt will grow from its current $16.9 trillion level to $20 trillion by 2020,” Sabbarese said in an email.
Economics professor Luc Noiset said he doesn’t think the U.S. will ever default on its loan obligations, but he doesn’t think the nation will have the funds to cover the rising costs of Social Security and Medicare either.
“Politicians need to face the American people and tell them that the government will not be able to fully keep the Social Security and Medicare promises that have been made,” Noiset said, adding that the programs need to be trimmed but not eliminated.
According to the Social Security Administration website, there are nearly 60 million Americans who receive a monthly Social Security check. That number is expected to increase dramatically in coming years as more Americans prepare for retirement. The agency estimates that by 2033, the number of older Americans will increase from 45 to 77 million.
Less than half of America’s workforce is offered a private pension by their employer and only 34 percent of workers have money set aside specifically for retirement, according to the SSA.
“Fortunately the U.S. dollar is the world’s currency,” Sabbarese said, adding that there is no other currency that can currently replace it, offering the U.S. an advantageous position when it comes to financing its debt.
“That said, the dollar under normal conditions (no default on our debt) is viewed as a safe haven for foreign investors and holders of U.S. dollars and assets,” Sabbarese said. “Should we lose the faith of foreign investors, the cost of borrowing would increase substantially and add even more to our deficit and debt level.
He said a federal default, although unlikely, would cause interest rates in the U.S. to skyrocket — not only on Treasury debt, but also on mortgages, car loans and credit cards.
“As a result, these higher borrowing expenses would constrain the ability of the U.S. economy to grow and create jobs,” Sabbarese said.
Although America’s debt crisis appears to be under control for now, members of Congress are becoming increasingly divided by partisan politics.
Congressional Republicans are adamant about not supporting Obamacare or any other bill that would raise taxes on Americans. Democrats are equally adamant about maintaining Obamacare and not cutting any entitlement spending. The partisan divide between members of Congress has made it extremely difficult for them to pass effective legislation.
“The American people are completely fed up with Washington,” Obama said in a speech announcing the agreement to end the shutdown, which he referred to as a “self-inflicted crisis.”
Noiset said he thinks Congress should get rid of the debt ceiling law altogether.
“It serves no purpose except to spark these embarrassing encounters,” he said. “Congress passes laws for all government spending. The debt is only used to pay for spending that has already happened. If they want to stop spending, they should stop passing spending laws, not refuse to pay the bills after the fact.”
“The reality is that Democrats and Republicans represent completely different worlds right now and there is very little overlap,” Pieper said. “When policymakers have to choose between compromising and getting re-elected, they are going to choose re-election.”
