Lately, I travel to Europe with my wife, who has a family home in Sweden, at least once a year. But Scandinavia, it turns out, doesn’t give me a true sense of the mess that is the center of the continent, or the British Isles.
That means I may be missing a preview of the coming mess in the United States.
Sweden has gradually reduced its famous welfare state. As a result, according to government.se, Sweden’s economic growth is exceeding expectations. “Companies are investing more, and exports have grown strongly despite global economic uncertainty.”
That’s not so farther south.
Britain’s woes
In Britain, an aging population and a falling birth rate is straining the country’s ability to keep up with its public programs. A stagnant economic growth rate has led to a borrowing spree that “is being financed at the highest interest rates since the 1990s,” according to Manhattan Institute senior fellow Jessica Riedl, who penned an op-ed in The Washington Post last month.
She added, “This has pushed interest costs to almost 10% of public spending, nearly 50% higher than the defense budget.”
Despite this, she said, Britain appears to be in denial. Its government passed a historically large tax increase last year that lawmakers used to expand programs rather than to pay down debt or reform spending.
France is crumbling
In France, things are even worse. An aging population, falling birth rate and political backlash against immigration have combined to put the nation on the verge of economic collapse. The nation’s bond market is jittery. Writing in The Wall Street Journal this week, Stacy Meichtry and Chelsey Dulaney reviewed the political forces, collapsed governments and unfortunate decisions that have put the country “on the precipice of a dangerous financial spiral.”
A government study predicted the national debt would grow 59% higher by 2030. “Debt payments are now one of the French government’s largest line items and could dwarf military spending by the end of the decade,” Dulaney said. “France’s debt, now worth nearly 120% of gross domestic product, risks putting the economy in what its central-bank chief recently called a ‘gradual stranglehold.’”
A separate Journal piece by Don Nico Forbes said economic and political uncertainty, including confusion over tax rates, is causing companies to delay spending. Business investment has dried up. Students are leading mass protests against underfunded schools.
Read more The greatest show on turf
Warning signs in the U.S.
Sounds awful. However, neither country has the kind of debt problems the United States is cooking up amid its own struggles with a graying population, a falling birth rate and a newfound antipathy toward immigration.
This year’s federal budget deficit is expected to equal 5.8% of gross domestic product, or the sum of the nation’s total economic output. The total public national debt just passed $40 trillion and equals 126% of GDP. In France, it’s only 119%, Nico Forbes reported.
Still, the U.S. economy seems to remain on sound footing. Like it or not, the tax structure is stable and predictable, despite seemingly constant changes in tariffs. Unemployment is low. Business investment is healthy and consumers continue to spend despite high inflation.
But can it last?
The U.S. has laughed at warning signs before as it continues to spend much more than it collects in taxes. Interest alone on the national debt is projected to be $1.36 trillion this year, much higher than what Washington spends on the military. Mortgage rates are climbing, as are rates on the Treasury bonds being sold to finance the debt.
Can this continue?
I keep coming back to a study three years ago by the Penn Wharton Budget Model at the University of Pennsylvania. It predicted real trouble will begin when Washington’s total debt equals 200% of GDP, which it said would happen by 2043 but could happen much sooner if investors lose confidence in the nation’s ability to pay its debts.
When that happens, “no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly.”
This doesn’t have to happen. Perhaps Social Security’s predicted crisis within the next eight years or so will prompt Congress to sober up, lay politics aside and tackle big problems. Perhaps only a slight movement in the right direction would be enough to reassure markets.
Read more What Kansas coach Lance Leipold said after losing to Utah
Or perhaps we all will long to move to Sweden.