U.S. debt not sustainable

Niall Ferguson


Kai Ryssdal: The economic conversation that's happening in Washington right now, and that is likely to flavor this fall's elections, pretty much revolves around one word: Debt. How much money the country owes -- which is a lot. And whether now's the time to go deeper in the hole to help get the economic going again.

Economic historian Niall Ferguson has been blunt in his view -- that the amount of debt we're carrying simply is not sustainable.

Niall Ferguson: There is a fundamental imbalance between what we expect the federal government to spend on Medicare and Social Security and national security and what we're prepared to pay in taxation. And that is really the core of the issue. The Greeks found that out this year. My fear is that Americans may find this out next year or the year after.

Ryssdal: That quickly?

Ferguson: Oh absolutely, these things happen really dramatically, because when the bond market turns its blinker gaze in your direction and investors say, "You know what, lending these people money for 10 years in return for 3.2 percent a year isn't that smart. Maybe we should ask for a little bit more for the risk that we're taking." That's the kind of thing that happens very suddenly in international financial history.

Ryssdal: Let me ask you then to concentrate on the historian part of your economic historian professional identity, and go back and explain how it came to be that our economy runs this way.

Ferguson: Well, for most of the history of the United States, the federal government was a relatively small entity, and there was a time when it had no debt whatever. It's been since around 1979, 1980 that we've seen a sustained upward shift in the federal debt and that's come about I think because of politics more than economics. Increasingly, Democrats became committed to public spending and Republicans became committed to to cutting taxes. And this unholy alliance, if you like, between tax cutters and public spenders created a fundamental imbalance between what was being spent by the federal government and what was being raised in taxation. And now we find ourselves in a situation where a structural deficit has been combined with a cyclical deficit due to the financial crisis. And we are now looking at a very acute fiscal crisis -- the worst in American history.

Ryssdal: What might a sovereign debt crisis look like here? We know what it looks like with the Greeks. They eventually got bailed out. They had riots in the streets. What happens here?

Ferguson: Well, we have a little foretaste, because there is already a fiscal crisis in America and it's happening in the States. And what happens is that you find yourself actually having to cut public services and also raise taxes because you've reached the limit of your ability to borrow. If we find that 20 or 25 cents of every tax dollar that we pay is just going on interest payments, then you get into some very difficult choices. Do you put up taxes? Never very popular. Do you cut entitlements? These are the questions that are currently being asked at the state level. They will soon be having to be asked at the national level too.

Ryssdal: What do we do though? Is this the time to cut in the middle of a recession when still so many millions are out of work and the economy is struggling?

Ferguson: I think there's a false dichotomy here, where essentially the problem is phrased as follows -- either we need more stimulus or we need austerity. I wouldn't envisage fiscal tightening in 2010 or 2011, but we need to have a credible plan so that by 2020 we're not running trillion dollar deficits. And I'd like to hear it couched in the following form: We're going to reform the entitlements that are currently threatening to bankrupt the United States. We are going to introduce a federal sales tax or value added tax which would take some of the strain off the income taxpayers. It's a big bang reform that we need. So this is the third option: Not a further stimulus, not a ghastly austerity package, which could push us back into recession, but radical fiscal reform that creates a foundation for more rapid growth and therefore, for more job creation.

Ryssdal: Niall Ferguson of Harvard University. His most recent book is called, "High Financier:
The Lives and Time of Siegmund Warburg." Niall, thanks so much for your time.

Ferguson: Thanks, Kai.

Log in to post21 Comments


(Sorry, if this is a repeat comment. Wasn't sure if it went thru the 1st time!)
I was disappointed in the interview with Niall Ferguson when he failed to mention the tremendous debt attributed to our wars in Iraq and Afghanistan. Hmmmm… wouldn’t that make a significant impact on our national budget if we cut money there, or, better still, pulled out altogether?
Rolla, MO

The Federal debt increased only after 1979? What about WWII, the Great Depression, or the period from 1860-1880? The US has almost always had a national debt, and almost every major recession has started after the debt to GDP ratio began to fall.

The United States is not Greece, we are a sovereign country that controls it's own currency. There is no debt crisis. Can Niall Ferguson explain how Japan can have twice the debt to gdp ratio of the US and lower interest rates?

Why don't you interview someone who knows what they are talking about.


I suggest the "Patriot Act Part Deux" whereby all well off retired individuals can voluntarily return a social security check if they do not need one. Also, this act would not apply just to retired individuals. If, after filing your taxes and you are to receive a refund, simply check off a box that says "return to treasury".

I was disappointed in the interview with Niall Ferguson when he failed to mention the tremendous debt attributed to our wars in Iraq and Afghanistan. Hmmmm… wouldn’t that make an impact on our national budget if we cut money there, or, better still, pulled out altogether?
Jackie Schmid

Ferguson has been discredited in so many circles (look up discussions of his 2003 book asserting that the British Empire was a swell way to run the world, and his links to the Hoover Institution that came up with the unworkable idea of "supply-side economics" Milton Friedman loved and Ronald Reagan fell for) it is surprising anybody is giving him a forum. Here he gets away with implying that programs like Social Security and Medicare are unsustainable, which is patently wrong, since both can be managed with a few adjustments. Look at every other developed society if you don't think so. OK, so we don't throw out the baby with the bath water. What then? He says there is a "a fundamental imbalance between what we expect the federal government to spend on Medicare and Social Security and national security and what we're prepared to pay in taxation." He has been guzzling the Tea-Baggers brew, or course. Certainly Americans will pay for these programs instead of scuttling them, although he avoids suggesting we should reduce military expenditures. Ferguson does not really understand America and Americans, his post at Harvard notwithstanding; or maybe because of his post at Harvard. What does the professor propose? A cop-out, an enormous European-style consumption/sales tax (which in its home countries is usually around 20%), that would be stifling and unfairly regressive, so the income-tax burden on the well-off can be lessened and we can continue to avoid confronting difficult issues. Anyone who thinks the American people would stand for that needs to go back to Scotland. The simple answer is instead to level with the American people by telling them that taxes must be raised to pay for the social programs they want, and that the burden will be most heavy on the wealthy, who have benefited most from the system as it exists and have not yet let enough "trickle down."

One would hope that a Harvard professor would understand that Social Security is fiscally sound for years to come, all of us Boomers having paid 15% of our gross income into it for over 25 years, and be capable of refraining from speaking about "entitlements" in a generic sense and focus on the truly unpaid-for benefits like Medicare. Is he ignorant or does he have an agenda that involves misinforming your listeners, which, of course, would make him a perfect fit for your typically glib and often inaccurate features?

We, the American people have been engaging in cognitive dissonance for at least 30 years. We want all the benefits fr/ government afforded by the social democracies elsewhere in the developed world, without paying for them.
We were seduced into this mindset by clever people who knew how to exploit our self-image as rugged individualists.

Interesting experiment. We're closing in on the endgame. Expect excitement.

The Pentagon can't pass an audit, and can't account for over $2.6 TRILLION in cash/assets. There is absolutely no need to cut the so-called entitlement programs - we should be cutting the biggest entitlement of all - the Dept. of Defense.

We're supporting approx. 1400 military bases. We've spent $1 Trillion (borrowed) on wars we can't win. Approx. 58% of the federal discretionary budget goes to defense/offense.

We need to curtail our notions of global military imperialism - and cut military spending in half.


With Generous Support From...