READY, FIRE, AIM: As a Consumer, More Than a Little Bit Worried

I like reading stories about people who are smarter than me. Which is a lot of people, although not necessarily people in government.

But, like, college professors are generally smarter than me. Vikram Kumar, Economics Professor at Davidson College, for one. He knows a lot more about the bond market than I do. (Which isn’t saying much, but I will say it anyway.)

Interest rates on U.S. government bonds have climbed to their highest levels in years, and the effects show up in the cost of borrowing money for almost anything. Is Professor Kumar worried? Like any smart person, he notes that one man’s ceiling is another man’s floor. Especially if you live in a multi-story apartment building.

“As a consumer, I worry a little bit,” he says in a Davidson College interview. “As a saver, I’m on the happy side.”

I’m not a “saver” so that doesn’t help me. I live paycheck to paycheck. Or worse.

And as a consumer, I’m more than “a little bit” worried. “Terrified” comes closer to describing how I feel lately.

But Professor Kumar seems to view the U.S. economy as a glass half full.

The missing half being, the $40 trillion in Federal Debt.

When I was a kid, the Federal Debt was equal to about 40% of the Gross Domestic Product. But I was a kid, so I didn’t pay much attention to that fact. Then I became an adult and also didn’t pay much attention to the problem, because — you know, falling in love, having kids, buying a minivan and a lawn mower, becoming a famous humor columnist, and so on.

In fact, I didn’t pay any attention to the ratio between the Federal Debt and the Gross Domestic Product until just a few minutes ago, when I wrote that sentence about the glass being half full, and the $40 trillion.

According to the Federal Reserve Bank of St. Louis — my favorite federal reserve bank — the glass is actually less than half full.  In 1984 (the year I got married, and also the title of a book by George Orwell) the Federal Debt was still below 40% of the GDP,  but by late 2012 it had hit 100% of the GDP.

This year, it passed 120% of the GDP.  Which has some people worried.

Is Professor Kumar worried? I have often had the theory that the smarter you are, the more you understand about the world… and thus, the more worried you should be.

But to judge by his interview, the good professor is “a saver on the happy side” and not “a consumer who’s a little bit worried”. The Davidson College interviewer, Jay Pfeifer, asked Professor Kumar if the current problem with rising interest rates is just a U.S. problem, or if it’s a global problem.

He says it’s a global problem. But for some reason, he’s not worried. Even though he’s really smart.

Professor Kumar:

Governments have three options to control the debt outlook: raise taxes, lower spending or increase the rate of growth so that they can afford to service the debt. The U.S. is fortunate to have higher growth than Europe right now, so we can increase our tax revenue base.

Well, that’s all very interesting. I wouldn’t mind if taxes were raised on certain people, so long as it’s not my taxes getting raised. And I definitely wouldn’t complain if the federal government lowered its spending, so long as it doesn’t affect my benefits. I’m pretty sure everyone agrees with me on those two statements.

But I’m not sure I buy the professor’s comment about “higher growth than Europe.” Everybody has higher growth than Europe. Antarctica probably has higher growth than Europe.

But if U.S. growth is so great, then why is our federal government $13 trillion dollars deeper in debt than six years ago? Where’s that “increased tax revenue base” that we’re supposed to have, Mr. Smart Professor?

I mean, okay, sure… I admit I am myself a few dollars deeper in debt than I was six years ago. But I’m not bragging about my economic growth. (It’s higher than Europe’s, however.)

The Professor’s conclusion?

The U.S. economy has been growing very well, and though the inflation rate is not ideal, the job market has not broken despite a lot of the challenges. The U.S. economy has defied the odds before.

I definitely have to agree that the inflation rate is not ideal… and also, I agree that the U.S. economy has defied the odds before.

But what are the odds, exactly?

Maybe I don’t want to know.