Request Monday (10/22/2012): The real debt we leave our children...

"I read your post in response to my question, and I generally support environmental issues, and hear all the arguments in favor of improving our use of energy and quality of life. I still look at that large national debt and think that if we do not fix our economy and pay that down, we will not have the resources to do anything. Why shouldn't we focus on paying down our debt first, then tackle climate and environmental issues?"

- Dan from Chicago -

Both questions are fair, and there is no question that we have to look at our priorities and get our national fiscal health in order. I contend that not addressing climate change posses an even more dire issue of fiscal health, and one that has fewer and more difficult solutions.

Some facts about our current debt, as of the end of our government's last fiscal year 2012 (September 30, 2012):

Total debt outstanding: $16,066 billion dollars
Held by public (1) $11,270 billion dollars
Intragovernmental (1) $ 4,796 billion dollars

The debt held by the public costs taxpayers through the repayments of bonds and bills to the holders, and through interest paid on that debt. As with a mortgage on a house, the payments remain fixed in terms of the dollars, but the value of a dollar decreases over time. Normalizing the values to their equivalent in today's dollars yields the following (assuming an average 1.5% inflation rate):

This is important because a fixed debt payment with interest does not escalate with inflation. On the other hand, the costs associated with climate change do increase because they include the labor and material costs for that year we perform the work, as well as the increasing impact of the pollution if unmitigated. In 2012, these costs included:

Air pollution: $246 billion
Water pollution: $ 4 billion
Health costs from climate change: $ 14 billion
Damage costs from climate change: $116 billion
Water shortages real estate losses, and food prices: $100 billion (estimated)

This totals $480 billion in 2012 dollars. As stated previously, this amount will escalate in two ways over the next 30 years (assuming we agree to cap our polluting activities at 2012 levels for the next 30 years): money will inflate and the damage will increase in impact. Assuming a 1.5% inflation rate (conservative) and a 5% increase in damage due to increasing levels of pollution (we only assume that we will stop getting worse, not that we will fix anything), the annual cost of responding to pollution is:

This does not include the value of lost human life, nor does it include the full value for real estate, water and food noted in the NRDC Cost of Climate Change report. Lastly, it does not assume increased pollution into the atmosphere, which is where we are trending without significant attention to the matter. Superimposing the two charts, you can see the concern:

The final issue with the comparison is twofold. First, our financial system is man made, and as such, we have tools to deal with the ramifications without increasing the problem. The natural world does not have any such tools. Once we create the damage, or set the damage in motion, we no longer have a way to change the system to help solve the problem without dedicating time and resources. Second, if we decided tomorrow to stop spending more than we receive each year (politically unlikely, but technically feasible as we did in 2000), we would effectively stop compounding the issue. If we fix our pollution at precisely the rate we generate it today, we continue to add to the problem.

In effect, we are a homeowner that makes $55,000 per year, and has two problems: we have a mortgage on a house equal to $250,000 and medical bills from being overweight and eating unhealthy that total about $8,000 a year. The way the mortgage on our house is set up, it will cost much in the first couple of year, but less and less per year as time goes on. Our medical bills will continue to rise even if we stop our habits from getting worse but do nothing to fix the damage done. We must find a way to reprioritize our national spending to focus on changing our habits AND fixing the damage. The good news is that all the fixes mean more money spent employing Americans and less money spent outside the country, and more money spent in sectors with high numbers of jobs per dollar and less money spent in sectors with low numbers of jobs per dollar. All it takes is acceptance of the problem and the will to solve it.



(1) Intragovernmental holdings of debt come from borrowing made by one of the national trust funds (Federal Old-Age and Survivors Trust Fund, or the fund that stores surplus receipts from social security taxes holds a little less than half of this intragovernmental debt). Public holdings of debt constitute those we have more familiarity with: holdings of treasury notes, bonds, etc. Of that debt, about 15% is held by the Federal Reserve Bank, 48% is held by foreign entities (with China and Japan leading the way at just under 10% of the $11,000 billion each), and the remainder (37%) by US citizens and local governments.

For purposes of this analysis, debt payment schedules on Treasuries (totalling $9 trillion of the $11 trillion) are used. The remaining debt has no specific payment schedule, and will change the relative scale of the situation but not the overall conclusion. Also, intra-governmental debt is debt owed by a government to itself, so at any time, the government could forgive this debt.