BUNK 45
BIG DEBT IS NATIONAL DEATH
I don’t care your political leaning—left, right, center, libertarian, green, or even French socialist—everyone agrees America has big debt. And most everyone agrees the big debt is terrible and a drag on our economy—possibly forever.
If you’re a debt hater like most folks, 2009 likely made you apoplectic as massive stimulus efforts to kick-start the economy added hugely to America’s debt. We can quibble about whether the fiscal stimulus was the right response, and whether stimulus programs are well run and the money spent efficiently (they aren’t and it wasn’t—government spending is always a mess—but when trying to kick-start an economy, there are times when it is better to spend stupidly than not at all). But either way, there’s no denying that, at the end of 2009, our net public debt totaled about 53 percent of GDP1 and was elevated compared to very recent history.

A Long History of Big Debt

But is that so bad? Figure 45.1 shows US net public debt (i.e., debt held by the public and not other branches of the federal government, which is what matters—see Bunk 47) relative to GDP. Debt, though elevated, isn’t much higher than anytime from 1991 to 1998—a time of overall economic vibrancy and fine stock returns.
And debt was higher from 1943 to 1955, reaching 109 percent of GDP in the aftermath of World War II. Yes, that was war-related debt. And folks often feel better about war-related debt than peacetime debt—thinking we had to create the war-related debt, but peacetime debt is a choice. But the economy doesn’t care about the debt’s purpose or morality—it just cares there’s additional money being borrowed and spent. And the recipients of that borrowed and spent money spend again. And those recipients spend—with each transaction spurring more and more later transactions, all contributing to moving money through the system and bettering the economy. Plus, that earlier period, the late 1940s and early 1950s, isn’t remembered as economically troubled—or even as a time of high debt.
Figure 45.1 US Net Public Debt to GDP Over Time—Back to the ‘50s
Source: TreasuryDirect, Congressional Budget Office, March 2010 release.
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Ironically, it was the period before the war—the Great Depression—when debt was lower but the economy miserable. And even the period following the very elevated debt levels of the 1950s weren’t times of ruin. Very high levels of debt then didn’t irrevocably doom our economy—and shouldn’t now.

Bigger Debt Abroad!

Folks who fear US debt fail to do simple debunkery—thinking globally and looking at history. For example, the UK has a long history of official GDP and federal debt data—back, amazingly, to 1700—shown in Figure 45.2.
Figure 45.2 UK Net Public Debt to GDP Over Time—Much Higher in the Past
Source: HM Treasury (www.ukpublicspending.co.uk), as of March 2010. Includes budget projections through 2010.
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The UK, which, last I checked isn’t a smoldering ruin, has had in its history vastly higher net debt levels for very long time periods than anything we’ve ever contemplated in America—and overall has done fine. From 1725 to 1875 was generally England’s golden age—the dominant global economic and military power—similar to America today. This was inclusive of Britain’s Industrial Revolution—which began in England in the 1830s and only decades later was exported to continental Europe and then America. England led the world. Yet during the entirety of that 150 years, its net public debt was higher than ours now, and for more than 100 years (from 1750 to 1850) it was above 100 percent, peaking above 250 percent—more than four times more than levels we’re approaching now.
Think about it. Then, the UK was a much less developed and much narrower economy in a much less developed overall world where information traveled on slow ships and horseback and via quill pen. (I’ve studied, and I’m pretty sure they had no laptops back then.) Back then, if they could have four times more debt than the US has now and be a global economic growth powerhouse and the center for transformative innovation—all while taking on the backbreaking burden of the Napoleonic wars—certainly the US can handle its current debt (or even a tad more, I’d daresay). Maybe more debt isn’t good, and I’m not advocating it, but it just can’t be that bad at these levels—not catastrophic the way folks envision.
Folks mostly don’t think this way—they don’t check history or other countries. Even in the “modern era,” other developed nations routinely have much more debt than the US, but without catastrophe. Readers in 2010 may remember Greece and the problems it faces with its debt load. Doesn’t that show too much debt can be a problem? Not really. Sure, too much debt can be a problem, but I can’t find anything in history that shows, definitively, where that “too much” debt level is for the US or other large developed nations. Greece’s problems were concerns it couldn’t afford its debt service and might therefore default. (Which in my view was nonsense because in its past, Greece has survived with over double its current net debt interest payments as a percentage of its GDP.) But a little economic vibrancy—which Greece didn’t and doesn’t have—makes all that go away!
Interest rates in 2010 are historically low—even for Greece. What Greece needs is a lot less corruption, much less socialism, and much more free-market capitalism—like the US! That leads to more economic growth, which shrinks debt loads relative to GDP and makes the debt more affordable in the future. (If anything, Greece should also serve as a reminder of the perils of an entitlement society, but I digress.)
America’s debt level now isn’t worrisome, and it could get bigger without being at a level proven to be problematic. Think globally and historically, and it’s a lot harder to fret big debt in America now. If you want to see how little it actually costs us to carry our current debt levels and what we’ve done before, see Bunk 46. We’re not at any critical crisis level. That’s bunk.
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