Growth of the national debt has accelerated to proportions that would have been unthinkable not many years ago. And yet, liberals keep telling us not to worry, and that raising the debt limit is the only “responsible” course. Debt apologists like Barry Eichengreen.
A very smart friend takes Mr. Eichengreen to task. What follows is by him, I have left it in plain rather than italic type for the sake of readability:
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Here is the whopper:
First, government debt is not soaring. The Congressional Budget Office forecasts that debt held by the public will rise from a bit less than 100% of GDP in 2022 to slightly more than 110% in 2033….this increase is by no means catastrophic. And while the CBO sees the debt ratio, fueled by entitlement spending, rising more quickly after that, there are more pressing problems to attend to today than what happens after 2033.
Oh, well OK then! External debt is at 100% of GDP, but who’s counting, comrade? Other than the fact that it is unprecedented at this level since WWII. Besides, the real explosion is a whole ten years away! And we have the climate to fix in the meantime, so spend away!
But there is trickery here: “debt held by the public” does not include the so-called entitlement “trust funds” which represent the unfunded entitlement obligations promises of Social Security and Medicare. They’re not counted as “debt held by the public” since the trust funds hold only internal promises by the government to itself. In order to redeem the “trust funds” as a source of funding for entitlements new debt must be issued to the public. Why? The original funding for the “trust funds” has already been spent!
But there is no obligation for the government to do so. Precisely because, legally, they are not full faith and credit obligations of the United States they are not treated as “debt held by the public.” But just try to alter even newly accruing, not already “incurred” entitlements obligations promises and see what the left does. Slow Joe just demagogued entitlements in his SOTU fiasco on a technical proposal that he himself had sponsored in the past!
So, sure, external debt at 100% of GDP, but total debt as CBO and Treasury measure it is already at 124% of GDP and could easily be 150% in ten years–and then the real entitlements crush comes!
The next ludicrous claim is that the interest expense in the federal budget is not exploding. Obviously, if there are continued deficits and perforce incremental borrowing then interest expense in future periods must increase. Here the argument is presented that it isn’t necessarily so. If real GDP grows faster than the real interest charged the U.S. Treasury on its debt then more deficit spending funded by more debt does not have to mean more interest expense as a percent of GDP. It is stated that projected real GDP growth is 1.7% and real interest on Treasury securities is 1.2%. Mathematically, then, it is correct that the .5% difference leaves room for more debt with which to finance more deficit spending without unsustainable growth in interest expense.
OK, but let’s do the math! How much spending does that .5% rate differential permit above level interest expense? The answer is something not even close to current deficits, about $1 trilion. This is laughable! Projected deficits are at least twice this! Unless there are drastic spending cuts or tax increases, the interest on U.S. debt must increase exponentially. And, indeed, in nominal terms it has increased about 10% annually for years and is now almost 10% of the federal budget.
It is surprising to see an economics professor of some note making these patently disingenuous arguments in order to make a political point in the discussions around the debt limit. With 70% of the federal budget now consisting of “mandatory” spending, including almost $1 trillion in unspecified “other non-programmatic spending,” alarmism over spending and debt is entirely warranted. It is dismaying to see such sophisticated but disingenuous propaganda being brought to bear by parties in service to the left/Dems who know better.
