Don't Regret the Debt?

Robert Kuttner is irked that some folks are anxious about rising public debt levels when what the U.S. really needs to be doing is spending, spending, spending.

In one "storyline", he says, "the most dire peril facing the economy is the increasing public debt." But, he argues, "the more immediate problem is the high unemployment rate, the risk of a largely jobless recovery, and a lost generation of prosperity." He's worried that those who want to cut spending on social services—otherwise known as entitlements—have effectively already won the public debate.

We need a national debate on this basic choice, with equal prominence for the folks who want to gut social spending and deliver austerity, and those who propose a high road to fiscal stability. But nearly all the resources and the largest megaphone are on one side of the debate.

But the idea that mounting public debt poses a serious problem is hardly just a storyline. Moody's has already warned that the U.S. may lose its platinum credit rating, and the Congressional Budget Office is projecting that public debt could equal 90 percent of GDP in just a decade—perhaps sooner. That's well above the generally accepted 60 percent threshold for developed economies, and at the point where serious economic troubles start to develop. It's tough to say exactly what the consequences of such high debt levels will be, but as the folks at CRFB put it:

At some point, investor sentiment will shift, at the very least because judgment over the risk:return ratio for relative assets will change as the global economic and financial situation changes. How will investors then regard U.S. government assets relative to other assets in the United States and around the world? With our domestic savings gap likely to remain large, we will be increasingly vulnerable to a shift in investor sentiment as our public debt leverage rises.

But Kuttner never deals with any of this. Instead, he grumbles about Alan Greenspan, Bob Rubin, and the fact that Bill Clinton was given the "courtesy title" of "President" in a flyer listing guests at a fiscal summit (unbelievable, I know!).

And you have to wonder: Why is he so concerned? Despite his worry that one side of the fiscal debate is louder than the other, the policy action is almost entirely on his side: In the past year and a half, we've bailed out banks, passed a massive fiscal stimulus, and tagged a trillion dollars for expanding access to health insurance. Yes, President Obama has set up a fiscal commission to look at debt and deficit issues, but it's not terribly powerful. As far as I can tell, it's Kuttner's viewpoint that's winning: Spending, spending, spending is exactly what we're doing.