Yes, the National Debt Matters

Many Democrats and Republicans act like spending isn't an issue. Here's why they're wrong.


I'm always amazed to hear people say that the national debt doesn't matter because interest rates are low. Yet, it's a common refrain on the left and sometimes on the right. The next step in that line of thinking is that if accumulating debt is so cheap, we shouldn't think twice about spending more today without offsetting it with additional taxes or spending cuts. That's wrong.

Debt is the symptom of too much spending. One unfortunate aspect of talking about the problem of accumulating too much debt (as opposed to too much spending) is that it opens the door to arguments that we should raise taxes to pay down the debt. So, let me say this from the start: In my opinion, the only acceptable way to address the debt that results from too much spending is to cut the said spending. It's not only the right thing to do but also the most effective way to actually reduce the debt-to-GDP ratio, as a large body of academic literature has shown.

Admittedly, it's true that so far, debt accumulation hasn't resulted in a debt crisis, despite warnings from people like me that it could happen any minute now. But that doesn't mean that the crisis will never happen. It may simply take longer for investors to lose trust that the government will repay its loans. I suspect that other nations like France and Germany will face a crisis before we do, yet it's only a matter of time for us, too.

Now let me discuss some of the most misguided aspects of the argument that low interest rates give legislators an excuse to spend without restraint or tax offsets. The first and most obvious is that spending, and as a result, the debt, is already scheduled to grow quickly. Adding more spending to the mix is misguided considering that even if interest rates were to stay low, accumulating debt remains expensive. In fiscal year 2020, Uncle Sam spent $345 billion on interest payments, which is more than we're spending on the Departments of State, Education, and Homeland Security in fiscal year 2021 combined.

This is just the beginning, assuming no new wars or major recessions or expensive new federal initiatives—and with a minimal increase in interest rates, the Congressional Budget Office estimates that 8.6 percent of GDP, or about $5 trillion, will go toward interest payments in 2051. That will be roughly 27 percent of our fiscal year 2050 budget (up from 8 percent today) and over 40 percent of the federal government's fiscal year 2050 revenue. At that point, interest payments will be the largest government expenditure by far. This significant growth in interest payments as a portion of the budget will come at the expense of other budget items that people genuinely value.

There's also the fact that high debt levels slow economic growth. Assuming we never face a full-on debt crisis like the one we have seen play out in Greece, we'll then face the unfortunate yet increasingly likely scenario of becoming not-much-growth Japan. At least 40 academic studies published since 2010 observe the debt-growth relationship. They find that while threshold levels for advanced economies vary from 70 percent to 100 percent of debt to GDP, the negative effect of large and growing public debt levels does actually have serious negative effects on economic growth.

Finally, let's remember that today's spending must be financed eventually by taxes on someone. Those taxes will be economically damaging without successfully reducing our debt levels. In fact, they could even affect lower-income Americans the most if high debt levels bring about a regressive tax such as the value-added tax. In addition to the impact of these new taxes on economic growth, it would be unbelievably unfair to future generations. They haven't agreed in any way, shape, or form to all this deficit spending, and yet, they will be presented with an enormous bill (not to mention slower growth) as a result.

The bottom line is this: Even if you assume that interest rate increases and debt crises are so far off in our future that it doesn't make much sense to fret about them today, it still doesn't mean that deficits don't have a cost to us today. Those costs are real and significant. Prudent leaders should take steps now to make sure their actions don't cause a debt crisis in the future. Sadly, there are no such leaders in sight today.


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  1. Dear Veronique de Rugy,

    I would love a list of those 40 studies. Useful bibliographies are useful – don’t hide your work.

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  2. If the debt mattered so much, perhaps you shouldn’t have supported the candidacy of a president who promised to outspend his predecessor who, despite record tax collections, still increased the debt every year. Your revealed preferences betray your stated ones.

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  3. Reminds me of The Simpsons where Homer and Bart are in hole. And Homer declares, “We will dig our way out!” then starts digging deeper.

  4. The problem is that talk is easy and work is hard. Reducing the debt at this point will take hard work. It will mean both spending cuts and tax increases. We are well past the point where spending cuts will alone solve the problem. There is also the fact that we do need to invest in some programs. Like it or not roads need to be fixed and other spending will need to happen.

    All this means hard work and that is something that all politicians seem to avoid.

    1. We could [and likely will] argue about the nuances as to what should be cut [start with eliminating the entire Department of Education would be good] and who and how much should pay more; but regardless, it ain’t “easy” and therefore not politically advantageous for purposes of re-electability; therefore, short something along the lines of a constitutional resolution [aka amendment] mandating fiscal restraint, no one is going to step and and stick their neck out for “future generations” some “50 years” down the road.

      Read my lips: NOT GONNA HAPPEN

      So our only option is to force it to happen; whether that be mandating a balanced budget amendment [against which all believers in “modern monetary theory” will rail and accuse me of being simple and ignorant] or term limits [that will largely eliminate the 80%+ of congress persons who decide to make a career out of their “service”]

      1. The easy cuts are nowhere near enough. Department of Education is a drop in the bucket. Entitlements will need to be touched – there’s simply no other way to balance the budget. And that will not be popular.

        1. Thank you for the acknowledgement that cutting spending is hard work. It need to be done but is not easy and there is little sign anyone would be up to take on the task.

  5. Self correcting problem. Soon we’ll all be millionaires subjected to the taxes of the 1% and become the first truly flat tax nation. If that doesn’t work maybe we can invent some new ultra-gajillionaire taxes.

    1. Looking forward to sitting on my ass, sipping wine, and reading pulp fiction..

  6. The political class, especially those on the Left side of the spectrum, have convinced themselves that there is no downside to spending. A lot of the public does enjoy government money, and there is little political cost for indulging them. I fear that the only thing that will reverse the runaway spending at this point is a crisis, which will be terrible for everyone.

    1. Nothing to fear. As the judge said: if you are going to be raped, lie back and enjoy it.

    2. “…a crisis, which will be terrible for everyone.”

      Agreed; as more persons have become comfortable with government largess [which as we know is only increasing] along with the notion that there will be no ice man to cometh, this is only going to get more difficult to reverse. Any politician who has any desire to serve more than a single term is not going to touch any of that, so long as they can kick the can down the road to “future generations” [that have no bearing on their foreseeable “career” in public service].

      Whether it’s a balanced budget or term limits, we will have to take action to force it to happen.

    3. The political class ain’t the problem. The voter is the problem. And that means every single voter. Not just those who think it’s the other guys fault.

      1. “..every single voter.”

        And you expect every single one of them to gain meaningful insight so as to look beyond themselves, their party alignments, their own agendas, their thoughts and feelings, their confirmation bias, etc. etc. and vote for the “right” candidate? Assuming there will be any candidates who will run on a platform of austerity?

        Don’t mean to sound cynical, by the way.

    4. The left in the UK talk about a magic money tree. They whisper this myth among themselves that there are huge amounts of money that can be unlocked (usually from previously ‘avoided’ taxes) to pay for all their whims.
      These are not serious people.

  7. One thing I’ll give the Democrats- they actually at least pretend to care about it. They of course raise it anyhow but their “tax and spend” is far better than the “cut and spend and spend” of the Republicans that does jack shit for anybody except their wealthy buddies.

    1. “One thing I’ll give the Democrats- they actually at least pretend…”


    2. Usual leftie shithead with her usual leftie opinion.

  8. Average maturity of US debt is 7 years. A crisis will come much sooner than 2050 when interest rates go up just a few percent, and all this cheap debt has to be rolled. 1% on 30T fully rolled on the curve is 300b per year.

    1. Agree that the crisis is going to be precipitated by some rollover event. right now $4 trillion of that debt is less than 1 year. That won’t be an issue unless there is some issue re reserve currency which I doubt will happen anytime soon.

      $11 trillion of the debt is 1 to 10 year. THAT is almost entirely secured by mortgage issuance and there really does have to be some limit on how much we can distort and keep inflating the housing bubbles and subsidizing landlords/investors. That said – that bubble has been going for 25 years.

      the rest is either >10 year or adjustable rate type debt. So basically mmt type debt secured by tax revenues sufficient to keep rolling debt over.

  9. “if you assume that interest rate increases and debt crises are so far off in our future that it doesn’t make much sense to fret about them today”

    It’s funny that those who push this notion are the very same who insist that action NOW is THE MOST IMPORTANT THING IN THE WORLD because the climate might be different in the year 2100.

    1. Climate in 2100? We will all be underwater by then. Pun intended.

      1. Someone has to say “I see what you did there,” so I just did.

  10. I worked with a guy from YPF, the Argentine oil company. Between 1988 and 1991 they saw 50,000% inflation. The Austral was abandoned and replaced by the peso.
    So, printing more money is an obvious and attractive proposition, and one supported by the same groups pushing CRT and the 1619 Project – Modern Monetary Theory.

    1. Yes, print a lot of money. As long as those that might have a thought that it could be a bad thing are bought off with some shiny trinket on a regular basis, all is good.

  11. Greece’s recent debt problems are not a good example – the euro is a flawed currency system. Greece is a trade deficit country – and it has to “export” euros to buy goods and services. Because Greece cannot issue euros or rely on currency rebalancing (devaluation), they had to undergo a recession/depression. Japan is a much better example – their fiat currency system is quite similar to ours. It’s interesting to note that at least ten years ago, many experts were certain Japan was going to get hit with hyperinflation. So far, it hasn’t happened. Seems to me that the most important thing to monitor is living standards. Harmful inflation hurts living standards – and hyperinflation is the extreme version of harmful inflation. I’m not sure the debt-to-GDP ratios or debt service relative to GDP or the rest of the federal budget are very useful metrics at this point – at least not by themselves. Can Veronique tell us how our future debt crisis will play out? Hyperinflation – that hasn’t happened in Japan, or will we be mired in a stagnant economy, fight deflation – which is what Japan has been experiencing for many years?

    1. Why hasn’t Japan engaged in currency rebalancing to fight the deflation?

    2. Until we repudiate our debt, the scenario is Japan. Once we repudiate, hyperinflation. No country has ever repudiated debt that is mostly/significantly held domestically.

  12. Finally, let’s remember that today’s spending must be financed eventually by taxes on someone.

    “Financed” and “taxes” in a metaphorical sense, unfortunately.

  13. It’s good to see an article saying the federal government’s debt is a real problem, but the article misses the main point. Biden’s 30 trillion dollar debt in 2022 isn’t the same thing as Bush’s 10 trillion dollar debt in 2008. It’s tripled in just 14 years. The debt was under 1 trillion dollars as recently as 1980.

    It took over 200 years to rack up the first trillion. It hit 10 trillion a single generation after that. And it’s (going to) hit 30 trillion in less time than it takes Oakland to build a baseball stadium.

    The recent low interest rates have masked how bad it is. 1% interest on 30 trillion is only 300 billion a year. When rates go back to 3% it’s pushing one trillion just to make the minimum payments. And it’s going to go a lot higher than 3%.

    1. Politicians game the system. They really have people fooled.

      Trade should run any system.

      For example, if people need government welfare, then it should be a trade. They get the welfare, but they have to give something up in return.

      For example, if they have nowhere to go, then they would have to live in a place like Fort Bliss with other welfare recipients and wear uniforms. It is no longer an obstacle to getting many a job because — equal opportunity and nondiscrimination policies. But they may live with other people if they have someone to take them in. That way, the system remains solvent and they can’t turn around and claim that the only way they could continue on was to engage in illegal activities on behalf of room and board.

      Politicians have been making welfare so very cushy. You can choose where to live, what to buy at the store, and all the things that not even starving college students feel likely to have — and draw welfare all the while.

      There have to be lots of ways to reduce spending. But really it all amounts to welfare of a sort.

  14. Best just to let it crash, then remove any and all lefties from power, and bar them from running companies or running government ever again.

  15. “We” aren’t doing the spending. We’re just forced to pay for it.

  16. Many Democrats and Republicans act like spending isn’t an issue.

    ALL Democrats and many Republicans. It might be a minor quibble, but the fact that you people act like there are as many fiscally responsible Democrats as there are Republicans is partly why we are in this mess. THERE ARE NO DEMOCRATS WHO AREN’T COMPLETELY INSANE ON SPENDING.

    1. Even Joe Manchin? He seems to have an occasional lucid moment.

  17. There is no way changes will be made unless they are mandated. No mandate will work unless it forces us to actually do something rather than to avoid doing something. No mandate will pass legislatively unless we are a)tricked into thinking that it won’t be a mandate with teeth or b)don’t really understand what it is but it looks like free candy.

    Hard to figure out what will work. Maybe something like a required sinking fund for all debt with maturity under 5 or 10 years. Either jacks up the cost of medium-term issuance or forces competing debt narratives on the long end and on the short end. But idk.

  18. I think Republicans pretend to worry about hyperinflation because 1) it’s the only economic crisis they’re familiar with and 2) they see the economic conditions of the 1970s as the starting point for their rise to power via a monkey’s costar who gave them permission to berate minorities for their poor manners.

    Public debt is equivalent to private surplus, so when libertarians call for paying down debt, they’re calling for government to take money out of the private sector and set it on fire. Somehow that seems counter to the point.

    Of course the real motivations behind this rhetoric is a pack of lies. Pretend that government debt is analogous to personal debt, and then declare we have no choice but to cut the social safety net.

    Cutting taxes and continuing to spend on giant public works like border walls and wars based on lies made this a tenuous project from the start. But I guess “We’re going to take money from the poor and give it to the rich” isn’t great on a bumper sticker.

    1. A society cannot consume more than it produces. You cannot create real wealth by flooding the economy with government debt (effectively money magicked out of nowhere). Government never creates wealth, which is why government overspending is a problem – because debt spending is consumption beyond our means. That’s not a ‘private surplus’ – it’s trading off with investment in future production. That means less wealth in the future.

      Our social programs are all mismanaged and pants-on-head stupid. They’re grossly inefficient. And besides that, social programs account for almost 75% of federal spending (I’m including Medicare/Medicaid and Social Security here). Any real solution is going to have to touch those. (I’m not going to say we shouldn’t reduce military spending and close a lot of our overseas military bases – we absolutely should – but that will be nowhere near sufficient).

      The border walls were dumb too. Democrats and Republicans are both idiots when it comes to fiscal policy.

      But you’re right that public debt isn’t like private debt. It’s worse. Much private debt (ie, non-mortgage debt) is taken on to create future value. Public debt isn’t. Public debt mortgages our future to pay for our present. (At least with a house mortgage, the person trading away their future wealth will pay for it, and without harming his future earning potential.)

      1. Close, but not quite. We can’t spend beyond our means. But our means are not tallied in public dollars. Government creates dollars out of thin air. Our means are determined by our resources and the efficiency with which we can exploit them.

        If government is adding to the money supply in the private sector, whether it’s through tax cuts or checks to individuals, it may devalue currency if there aren’t resources to match the consumption. Or, it can lubricate productivity in an environment in which demand is depressed by external factors like a pandemic.

        One bottom line is that you can’t say you want government to take money out of the private sector and then also be in favor of tax cuts. This is the age-old conflation of moral premises with monetary realities.

        I prefer if people just say they want to take wealth out of the hands of the poorer classes and give it to the wealthier classes. I like honesty.

        1. You’re getting several things wrong

          1. The ideal would be if the government didn’t muck with the economy at all. Barring that, the minimum mucking possible is the best.

          2. You’re right, wealth isn’t tallied in dollars. Two things you’re missing:
          – Wealth is real goods and services. Government policy can’t create them. Only private activity creates wealth.
          – Dollars are only valuable as a means of exchange. If you increase the number of dollars faster than wealth, you decrease their value. That kills savings in the longterm. (And in the face of lockdowns, where much economic activity came to a stop, increasing dollars is especially bad policy, because real wealth is decreasing. You can’t lubricate productivity when you’re preventing productive activity from happening).

          3. In the short term, you create mal-investment for two reasons.
          a. You cause over-consumption, because the market can’t tell that the extra dollars are ‘fake’ – dollars are fungible, and the availability of dollars is a signal of real wealth, but when government injects massive amounts of money, the signal is a lie. Which means people over-consume now, because the market is telling them that there are more resources than there actually are. Resources that should have been invested in future economic activity can’t be, so bubbles will form and investments will fail when they discover the resources aren’t available.
          b. The government sucks at allocating resources, because it lacks knowledge to efficiently distribute them. Only the market can efficiently distribute resources to where they’re most productive. Waste is rampant and inevitable. (And it can never have that knowledge – that knowledge is local and distributed. No central planner can access it and act on it). So don’t look to government for efficiency.

          4. No libertarian wants to “take” wealth out of the hands of the poorer classes. Only government can ‘take’ wealth. The libertarian wants the government to stop taking wealth, period. The proper relationship with other humans is that of a trader – offering value for value, engaging in voluntary exchange. Wealth can only be taken with force, and a libertarian abjurs the use of force as improper for ethical action.

          Nor does a libertarian want the government to take money out of the private sector. A libertarian wants the government to keep their grubby hands off, as much as possible.

          (Not going to argue that spending cuts need to happen first, because the debt needs repaying. That’s because we already spent that money, not because i think the private sector needs capital drained from it. But in the long run, taxes should come down too, and the size of national government should be permanently reduced to something on the order of 1-2% of GDP).

          I find it hilarious you think the government is actually helping impoverished people. If government was so effective at it, we shouldn’t have poor people any more. And if we had less government, the poor might just find it easier to earn a living.

          Honestly, along the lines of ‘you should pay for what the politicians you elect spend’, i think taxes should be assessed based on what the government actually spent (sort of like what Illinois does with property taxes), assessed solely against income. Every person deducts a standard deduction from their earnings to calculate taxable earnings, then the total government spending of the last completed fiscal year is divided among the remaining taxable earnings equally (basically a variable rate flat tax, where the flat tax is assessed against earnings minus standard deduction, and the rate is determined by what the government actually spent). If you don’t like what you’re paying in taxes, tell the government to spend less, or vote for politicians who will. The best way to get less government is to actually pay for the government we have.

  19. Why would France or Germany face a crisis sooner?

    The US Debt:Revenue ratio is north of 600%
    For most other OECD countries it is considerably less.
    For Germany it was 150% before Covid and the debt was melting rapidly with surpluses. EU countries’ consolidated public debt includes debts at lower levels of government and contingent liability; the US numbers do not include State/Municipal debt, nor the liabilities of GSEs such as Fannie, Freddie, Sally, etc.

    You do not service debt from GDP. That would be like a home-builder saying he can service his debts from all the funds going through his hands (lumber, gravel, cement). Debt service has to come from earnings/revenue, not turn-over.

  20. Reason endorsed and supported Biden.

  21. Does government only borrow money at a locked interest rate that won’t change if interest rates rise?

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