US national debt
The US government debt exceeds $34 trillion. Are you aware that the US government is $34 trillion in debt? That's 34 trillion dollars!
I decided to explain why the issue of national debt is not one of my main concerns.
First, while $34 trillion is a significant amount, it looks less daunting when viewed in historical and international context. Second, while debt is a concern, economically it is a problem that can be solved, for the most part, it is a political problem. Finally, many who express deep concern about debt often turn out to be hypocrites, and their hypocrisy sometimes reaches surreal proportions.
What is a terrible debt? That's a lot, even without taking into account the debt that one arm of government owes to another, the national debt is about $27 trillion. But our economy is also big. Debt as a percentage of GDP today is not unprecedented, even for America: it's about the same as it was at the end of World War II. That's significantly less than Japan's current debt ratio, and much lower than Britain's debt ratio at the end of World War II. In none of these cases was there a debt crisis.
But haven't there been many debt crises in history? For example, Latin America in the 1980s, Southern Europe in 2010-12? Almost every debt crisis involved countries that borrowed in foreign currencies, making them vulnerable to liquidity crises where creditors panicked and fled and those countries couldn't print money to pay. The euro crisis disappeared after Mario Draghi, president of the European Central Bank, said he was ready to provide cash to debtor countries.
The only clear example of a national crisis caused by a large debt in its own currency is France in 1926, and the story is very complicated.
Although those of us who don't believe that current levels of debt will cause a collapse may feel alarmed by projections of rising debt as a percentage of GDP. What does it take to calm this concern?
Governments, unlike individuals, never have to pay their debts in full. How did we pay off the WWII debt? We didn't do that. The federal debt was slightly higher when John F. Kennedy took office than it had been in 1946. But debt as a percentage of GDP has declined due to growth and inflation.
What is needed to stabilize debt as a percentage of GDP for the next 30 years? Bobby Kogan and Jessica Vela of the Center for American Progress estimate that 2.1 percent of GDP would need to be raised in taxes or cut in spending.
This is not a big number! America collects a lower percentage of its GDP in taxes than most rich countries; collecting an extra two percentage points would leave us a low-tax country and hardly hurt the economy. If debt stabilization seems difficult, it is only because of deep political divisions that make even small steps toward accountability difficult.
The main problem is the politics of the right, not the size of the debt.
America, with its huge economy and relatively low taxes, does not have a fundamental problem of fiscal sustainability. With the political will, we could easily solve the debt problems. The problem is political dysfunction, mostly due to the radicalization of the G.O.P. This radicalization worries me for many reasons, starting with the fate of democracy, and the federal debt is far from at the top of the list.