Wells Fargo is doing an excellent series of articles examining the relationship between our GDP growth rate and our national debt. One installment begins with the classic comment from former President Herbert Hoover, who said “Blessed are the young, for they shall inherit the national debt.”

It concludes we have the economic capability and begs the question of whether we have the political capability. Must we reach the limits of democracy to avoid financial collapse?

Here are a few factoids:
1. The national debt is approaching $35 trillion.
2. The productivity of our labor force has fallen to only 1.5% in recent years, compared to 3.0% at the turn of this century.
3. Our national debt is about 120% of our GDP but is not the highest of nations, compared to Japan at 250% (where the majority of national debt is held by Japanese investors) or Italy at 145%, which simply has a larger welfare state than the U.S. but not that much larger.
4. Our national debt is increasing, as percent of GDP, faster than any other western nation. (Our annual budget deficit this year is a whopping 6.54%.)
5. Our GDP growth rate has been only been about 1.8% for the last two years. It was 3.5% between the end of WWI and the global financial crisis. While our native-born workforce continues to age, foreign-born additions to our labor force have been 20% of the increase over the last two years.
6. Foreign born male members of our workforce (25-54) shows 59% participation (are actually working), compared to only 46% for our native born members. (In other words, they are more likely to be working than native Americans.)
7. As Wells Fargo likes to say “Labor’s contribution to GDP growth is important, but productivity is the Secret Sauce.”
8. Higher increases in population growth and labor force participation would only increase GDP growth by 0.1-0.3 annually . . . not nearly enough to solve our national debt problem.

Obviously, we cannot “grow our way out” of this problem. Can you imagine our President and Congress agreeing to both raise taxes and cut spending? Supply-siders insist that a tax cut will solve all problems, of course. Yes, the Kennedy tax cut did boost GDP growth, but how has that worked since then? Economists estimate the 2021 tax cut alone increased our national debt by $4 trillion.

Maybe, AI will save us, like the information revolution saved us?

The thoughts, opinions, and emotions of the above are solely those of Jim Flinchum and do not necessarily reflect the those of Bay Capital Advisors or its officers or its employees!