What happens when Americans learn how indebted they are?

The Wall Street Journal recently posed a curious question: “What happens when Europeans find out how poor they are?” This wasn’t a cheap shot at our friends across the pond, but an objective look at Europe’s stagnant economy, government spending and political realities compared to the U.S.

In an ironic juxtaposition, the paper also featured an article the same day announcing, “The U.S. national debt now exceeds 100% of gross domestic product, crossing a once-unthinkable threshold.” While yes, the Europeans are facing some imminent issues, the Journal’s question about their alleged poverty could be tweaked and applied to the United States: What happens when Americans find out how indebted they are? More on that momentarily.

“The widening gap between American and European prosperity is among the most important facts of the global economy,” the Journal noted. “The clearest manifestation is the chasm in per capita gross domestic product: $94,400 in the U.S., according to the International Monetary Fund, compared with $65,300 in Germany, $61,000 in the U.K. and $52,000 in France.”

This shift has apparently taken many Europeans unawares. In a recent poll, British respondents were asked if the United Kingdom were a U.S. state, where would it rank in terms of GDP per capita. On average, the British believed they would be the seventh-richest state, but that was not even remotely close. They would rank near the bottom — essentially on par with Mississippi.

“European welfare states,” the Journal continued, “by creating relatively comfortable lives for voters, conceal the full extent of Europe’s prosperity gap.” But European nations cannot continue down this path in perpetuity. Something must give eventually. “A collision with reality may be required. The bliss will run out when the funding for welfare does… Europe can use social welfare to hide from its economic failures, but it can’t run from them forever.”

This is true for European nations as well as the United States, especially in the wake of our record-setting debt. “As of March 31, the country’s publicly held debt was $31.265 trillion, while GDP over the preceding year was $31.216 trillion,” the Journal disclosed. This is one accounting of our national debt, but other metrics place it much higher. The U.S. Debt Clock pegs it at over $39 trillion.

Whatever accounting method you use, most lawmakers are not taking the debt seriously. 

“That figure will likely climb for the foreseeable future because the federal government is running historically large annual deficits of nearly 6% of GDP, which add to the debt,” the Journal predicted. “The government is spending $1.33 for every dollar it collects in revenue, and the budget deficit this year is projected at $1.9 trillion.”

For all the bluster about the U.S. far exceeding Europe economically, debt as a percent of GDP tells another story. Of the European countries, only Italy and Greece have a worse debt to GDP ratio. America is of course able to shoulder this level of debt better for a few reasons — the dollar is the world’s reserve currency and Treasury bonds are considered safe investments. Moreover, our economy is massive — with a larger GDP than the entire European Union combined.

Even so, debt takes its toll, and just like a family persistently living far beyond its means, a reckoning is coming. Net interest payments on our debt are set to exceed around $1 trillion this year — representing just under one-seventh of our budget — and they continue to grow. Eventually, they could dwarf all other line items, and as creditors lose faith in our ability to repay it, the U.S. will either have to deal with hyperinflation from printing too much money, default on loans, or raise taxes and/or cut the budget. 

Hyperinflation and defaulting are the worst possible options — meaning if officials became serious about our mounting debt, then they need to take a serious look at the budget. Debt repayment aside, entitlement programs — such as Social Security, Medicare and Medicaid — account for the majority of all federal spending.

Just as the Journal implied European states will need to reform spending on social programs, so too will the U.S., but is there the will to do so? 

“The thing that really scares people is the politics are so dysfunctional,” said William Gale of the Brookings Institution. “If you just saw the economic forecast and you had confidence that political leaders could get together and solve this problem, it would calm everybody down.”

Unfortunately, nobody really believes Congress will tackle this anytime soon, but Americans will feel the pain of seemingly insurmountable debt. All the boasting about how much richer we are compared to Europe will do us no good. So what will Americans do when they find out how indebted they are? Sadly, probably nothing productive, to our own detriment.

Marc Hyden is the senior director of state government affairs at the R Street Institute. You can follow him on X at @marc_hyden.