This economist says the national debt is like termites eating your home

Economist Michael Strain remembers the days when he could pop a quarter into a vending machine and get a soda. As an undergraduate, he was annoyed when the price went up because it meant he had to bring a dime with him too.
“Inflation has been pretty low for the period of time from when I was a undergraduate student to today, but the price of that soda hasn’t gone down,” said Strain, addressing a group of University of Utah students Monday. Since those days, the price of soda has risen by a couple dollars, he said. And consumers feel the impact of those price increases.
Strain’s the director of economic policy studies at the American Enterprise Institute and he was the first speaker in the newly launched Societal Impact Seminar Series put on by the university, the Utah Economic Council, the Governor’s Office of Planning and Budget and the Hinckley Institute of Politics.
Kicking off the series, Strain spoke about how inflation impacts consumers, tariffs, the national debt and the overall strength of the economy.
Strain started off with two points — first, that the U.S. economy is in a good spot. And second, the U.S. still has issues policymakers need to address. Natalie Gochnour, director of the Kem C. Gardner Policy Institute, said since it’s an election year, the conversation would steer clear of presidential politics and tackle the economy more generally. Strain spoke for around 15 minutes and fielded students’ questions for around half an hour.
Scanning the room, Strain asked the students a few questions, like how many of them are nervous about being able to buy a house, or how many are irritated their meals cost 20% to 30% more than they did a few years ago.
It’s normal to have some challenges, said Strain. “It’s important not to confuse the existence of challenges or the specific challenges with the broader picture. And the broader picture is that the U.S. is doing quite well.”
Strain said purchasing power is what matters — this is impacted by both your salary and also the price of goods. When prices rise quickly because of inflation, people can buy less.
“And quite naturally, people don’t like that,” said Strain.
When there is inflation, he said policymakers also raise interest rates, which makes it more expensive to buy homes and cars. But after inflation is under control and prices are rising more slowly, Strain said consumers still feel the high prices.
Former President Donald Trump has said he strongly supports tariffs as part of an economic strategy if he wins a second term. Strain said tariffs are a tax on importers bringing goods into the country. “But the people who ultimately pay the tax, in an economic sense, are you all.”
Tariffs work like this, he explained — the government puts a tax on a good being imported into the country. This gives the importer two choices. Will they raise the price of their good to account for the tariff? Or will they absorb the loss?
A student asked Strain a further question — will tariffs actually bring manufacturing jobs back to the U.S.?
Strain said politicians speak about bringing back these jobs as a return to the heyday of the 1970s or 1950s. “And that I think is basically impossible,” he said, explaining technology has taken over some of these sectors anyway.
What Strain said is compelling about tariffs is how they relate to national security. But the legitimate concerns about national security shouldn’t be conflated with trying to increase U.S. manufacturing.
Sen. Mitt Romney is one of the politicians in Congress who has expressed openness to tariffs in certain cases, but said he is also generally opposed to tariffs on allies. Speaking at Kiln in a meeting with Utah business leaders and entrepreneurs earlier this month, Romney, R-Utah, said he didn’t know what the impact of tariffs would be — but, he said, it would be worth calculating.
Later, explaining his remarks to reporters, Romney said he thinks tariffs on Chinese products in cases where China has used predatory pricing or has a monopoly is something he supports.
“What I don’t know is what the impact would be of more modest tariffs on our friends and allies around the world,” said Romney, adding he doesn’t think it is a good idea. But he said he was open to analyzing the issue.
Strain has a metaphor for the national debt: it involves a bear and some termites.
Say you’re in your home watching football on a Sunday, he said. Then, all of a sudden, a bear tries to break into your home. But then think you have a house with a bunch of termites in them. The termites will gnaw away at your home’s foundation, but it might not be a big deal immediately. However, over time, termites can cause some real damage.
Typically people talk about the national debt as a bear at your door problem, he said. “One day, something bad will happen.”
But Strain said the national debt is more like a termite problem.
“Compared to last year, the national debt hasn’t caused that many problems for the United States this year relative to last year,” he said. “But this has been a problem for 30 years and every year, things are a little bit worse than they were the year before.”
If the tax cuts passed in 2017 are allowed to expire, Strain said the amount of tax revenue will go up and the deficit will shrink. This means the country will still acquire debt, but it’ll be at a slower rate.
Even if this causes the gap between tax revenue and spending to be smaller, Strain said the U.S. still has an issue — spending is still increasing.
At the start of the event, Gochnour held up a copy of “The Economist” with words splashed across it calling the American economy “the envy of the world.”
One of the final questions asked by a student was about whether that was true. The student asked how America can be the economic envy of the world when people struggle to pay their rent and afford food.
Strain said there are a few measures he could point toward: the country’s low unemployment rate or income per capita.
“Ultimately, it’s a judgment, right? There’s no rule about how to make these assessments,” said Strain, adding he thinks it’s reasonable to be concerned about inequality.
Comparing the U.S. to Europe is difficult, he said, because America is a massive nation that is racially, ethnically religiously and politically diverse. Several European countries are more homogenous.
“I think it’s more instructive to treat each U.S. state as its own nation” when comparing them to European countries, he said. There are some issues where the U.S. lags behind Europe, such as unsafe driving, drug addiction and death by guns.
“But I feel pretty comfortable in saying that the United States is doing better than Europe.”
Contributing: Suzanne Bates