"Att: OMOLIVES - The Cowardice of the Deficit Scolds"
June 6, 2024
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By Paul Krugman Opinion Columnist
The United States government is more than $34 trillion in debt. Did you know that our government owes $34 trillion? That’s $34 trillion!
Whenever I write about economic policy, I get a lot of mail and a lot of comments basically asking why I’m not talking more about the national debt. So I thought it might be useful to talk about how I see the issue of public debt and why it doesn’t loom larger in my concerns.
Specifically, let me make three points. First, while $34 trillion is a very large figure, it’s a lot less scary than many imagine if you put it in historical and international context. Second, to the extent debt is a concern, making debt sustainable wouldn’t be at all hard in terms of the straight economics; it’s almost entirely a political problem. Finally, people who claim to be deeply concerned about debt are, all too often, hypocrites — the level of their hypocrisy often reaches the surreal.
But haven’t there been many debt crises in history? What about Latin America in the 1980s, southern Europe in 2010-12 and others? Well, almost every debt crisis I’ve been able to find in the historical record involved a country that borrowed in someone else’s currency, which left it vulnerable to a liquidity crunch when lenders for some reason ran for the exits and it couldn’t print cash to pay them off until the panic subsided. In fact, the euro crisis rapidly faded away after Mario Draghi, then the president of the European Central Bank, said three words — “whatever it takes .. https://qz.com/1038954/whatever-it-takes-five-years-ago-today-mario-draghi-saved-the-euro-with-a-momentous-speech ” — implying that the bank would provide cash to debtor nations under stress.
Still, even many of us who don’t believe that the current level of debt will cause a financial and economic implosion can’t help feeling a bit uneasy over projections .. https://www.cbo.gov/publication/59711 .. that show debt as a percentage of G.D.P. rising steadily over the next 30 years. So what would it take to assuage this unease?
Bear in mind that governments, unlike individuals, never have to pay off their debt. How did we pay off the debt from World War II? We didn’t. Federal debt when John F. Kennedy took office was slightly higher .. https://fred.stlouisfed.org/graph/fredgraph.png?g=1oydF .. than it had been in 1946. But debt as a percentage of G.D.P. was way down .. https://fred.stlouisfed.org/graph/?g=1oyea , thanks to growth and inflation.
So what would it take to stabilize debt as a percentage of G.D.P. for the next 30 years? Bobby Kogan and Jessica Vela of the Center for American Progress, working with Congressional Budget Office numbers, estimate .. https://www.americanprogress.org/article/what-would-it-take-to-stabilize-the-debt-to-gdp-ratio/ .. that we would need to increase taxes or cut spending by 2.1 percent of G.D.P.
That isn’t a big number! (Yes, the exact number could be either bigger or smaller, but in either case probably not by enough to change the basic point.) America collects a much smaller percentage of its G.D.P. in taxes than most other rich countries .. https://data.oecd.org/tax/tax-revenue.htm ; collecting an extra two percentage points would still leave us a low-tax nation and would be unlikely to hurt the economy. If stabilizing debt seems hard, that’s only because given our deeply divided politics,even modest steps toward responsibility are extremely hard to take.
Worse yet, House Republicans are pushing for drastic cuts .. https://thehill.com/business/4703208-house-gop-proposes-irs-funding-cuts-defunding-free-tax-filing-system/ .. in the Internal Revenue Service budget, depriving the agency of the resources it needs to crack down on wealthy tax cheats. That is, even as they yell about budget deficits, they’re both seeking to cut taxes and trying to block efforts to collect the taxes high-income Americans owe under current law.
So politics — specifically right-wing politics — rather than the size of the debt is the problem.
Which explains why I don’t talk more about the debt. America, with its huge economy and relatively low taxes, isn’t facing a fundamental problem of fiscal sustainability. Given the political will, we could resolve debt concerns quite easily. To the extent that debt is a problem, that’s a reflection of political dysfunction, mainly the radicalization of the G.O.P. That radicalization deeply worries me for several reasons, starting with the fate of democracy, and federal debt is nowhere near the top of the list.
Paul Krugman has been an Opinion columnist since 2000 and is also a distinguished professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman
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