The most persuasive reason to increase the public debt is that the population has grown from 180MM people in 1960 to over 300MM today. A larger population means more infrastructure and social service needs. Other reasons to increase the public debt include payment of current expenses, additional targeted stimulus for small business and out of the norm requirements to wind down ongoing conflicts in Iraq and Afghanistan.
The Gross Public Debt rose to 121% of GDP in 1946 and dropped steadily to 32% by 1975. The millenium began with the Gross Public Debt at 57% of the GDP and closed at 94% of the GDP in 2010. This year's Gross Public Debt at 94% is still well below the 121% in 1946 circa the end of World War 2. Our economic history shows that the public debt tends to increase quite considerably during wartime.
World class increments in infrastructure may be paid for by toll receipts on roads, customer fares on rails and tolls on bridges or tunnels. The Eisenhower Administration model for highway expansion is cited as a success in its time. Upgrades to the high speed wireless data network are slated to reach 98% of Americans. In time, these upgrades can be paid for with incremental cash flows emanating from increased public usage.
Opponents of raising the public debt point to enforcing debt discipline now . The opposing argument points to the growing $14 trillion dollar debt which breaks down to $47,000 for every citizen in the United States.
$14 trillion/ 300 MM population = $47,000 per person
The figure above is smaller per person assuming contributions from corporations and other legal entities . In the past, economic growth has been the great equalizer. Increments in economic growth mean that the Gross Domestic Product (GDP) is larger; and therefore, the Gross Public Debt becomes a smaller and smaller proportion of GDP if spending is held constant. At some point, the deficit disappears and a surplus surfaces to save the day. And so, the key question involves the likelihood of continued and incremental economic growth. To date, corporate profits have been on the rise. Ford Motor Company, GM and Chrysler are now operating at a profit.
Historically, the challenge has been to obtain a meaningful spike in demand for goods and services as a condition precedent to spur economic growth. Growing exports are another important indicator of increments in GDP in the not too distant future. United States exports are projected to double by 2014 or sooner according to assumptions in the 2012 Budget submitted 2-14- 2011. Real GDP now grows at 3% which is an improvement over the commencement of the Great Recession.
The Department of Defense reduced funding by $78 billion dollars. The challenge will be to keep DOD spending within a 3% to 3.5% of GDP as per the close of the Clinton Administration. In addition, a 2 year freeze on federal civilian salaries was put into place in the 2012 Budget. A 5- year freeze on discretionary spending was put into place ( not inclusive of security) .
More significant savings in Medicaid and other government health programs may be achieved through medical wellness programs which reward health maintenance strategies rather than cost savings from disease management. Other savings could be achieved by placing excess consumption taxes on junk food to raise revenue and reduce queues at medical facilities due to better dietary choices by informed citizens. Many important chemical patents will expire. As a result, generic drugs derived from these patents will be far cheaper than the medicines under patent protection currently .