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Opinion | Please Don’t Feed the Debt Scolds


In March 2011, Erskine Bowles and Alan Simpson, chairpersons of the White House deficit reduction committee, issued a scary warning on US government debt. Unless the US takes significant steps to rein in future deficits, they warn, a financial crisis could strike within about two years.

Bowles describes what he thinks will happen: Foreigners will stop buying our debt. And then he asked, “What happens to interest rates? What happened to the US economy? The market will absolutely destroy us.”

That was 12 years ago. At the time Bowles issued his warning, the 10-year US bond yield was about 3.5 percent. Not much has been done to reduce the deficit, other than arbitrary tightening of federal spending that could slow the economic recovery. But at the end of last week, the 10-year rate, which has risen significantly over the past year as the Fed raised rates to fight inflation,… about 3.5 percent.

The problem is that in the early 2010s, the last time we faced a potential debt ceiling crisis, there was an elite consensus that budget deficits were a serious threat. , even exist. This consensus, in retrospect, was completely wrong. However, it almost completely dominates the political conversation, to the point where, like Ezra Klein As pointed out, the media has abandoned the usual rules of reporting neutrality and openly cheers proposals for cuts to Social Security and Medicare.

And those of us, who defy the consensus of the elite, scoff at street vendors for panic attacks like Very serious people (because talking about debt problems sound serious and responsible, even when mathematics does not support rhetoric), is seen as odd and out of place.

Now, the Very Serious is trying to get back to, in fact, giving cover to Republican efforts to hold America hostage by refusing to raise the debt ceiling. Therefore, it is important to recognize that the debt crisis case, if any, is even weaker than in 2011.

It’s true that the US debt is huge – $31 trillion (spoken in your best Dr. Evil accent). And the US is a big country, so almost every economic figure is very large. A better way to think about debt is to question whether interest payments are a big burden on a budget. In 2011, these payments were 1.47 percent gross domestic product – half what they were in the mid-1990s. In 2021, they’re 1.51 percent. This number will increase as the existing debt is repaid at a higher interest rate, but actual net profit — interest payments adjusted for inflation — are likely to remain below 1% of GDP over the next decade.

This does not look like a crisis. But what about demographics? America is aging, which means an increasing burden on Social Security and Medicare. Doesn’t this mean big trouble ahead?

Yes, aging is a real problem. But much of the financial impact has already occurred. About two-thirds of baby boomers, born between 1946 and 1964, have reached Medicare-eligible age. Aging further will place additional demands on the budget, but we are talking only a few percentage points of GDP.

So why do we often hear about extremely grim long-term financial forecasts? As it turns out, these projections are driven only in part by demographics; they mainly reflect assumptions about the increase cost of health care and interest rates in the past proved too pessimistic.

The Congressional Budget Office regularly issues long-term budget projections, often cited in financial debates. However, my guess is that very few people realize how much less dire these predictions have become since the heyday of Very Serious People.

2011 budget room mat that according to what it considers The most realistic scenario, federal interest expenses in 2021 will be 4.4% of GDP — more than twice their real level. It also predicts that by 2035, federal debt will reach 187% of GDP. most recent show put that number at 117 percent.

Now, financial surprises aren’t always positive – who predicted the huge costs associated with Covid-19? — and I’m not arguing that government debt can never be a problem, or that our long-term financial situation is perfectly fine. But if you really care about America’s long-term future (rather than Very seriously), then you should think about many issues, from climate change, to infrastructure, to poverty. child hunger (a long-term problem because children who grow up in deprived circumstances grow up to be less healthy and productive adults). In terms of priorities, federal debt should be on the list.

However, the scoldings are trying to make a comeback. Partly because, like I said, babble about federal debt sound serious and stubborn. Part of that is because deficit hype is often deployed to serve an ideological agenda, an attempt to cut Social Security, Medicare and Medicaid (but not, of course, at the expense of Social Security). provides the Internal Revenue Service with resources to crack down on tax evasion).

So here’s my suggestion: Let’s not repeat 2011. Let’s not panic about an overzealous problem. Let’s not assume peacock deficit doing anything more than posture. And again, let us not allow the media to become a de facto accessory to an ideological, partisan agenda.

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