“Our message is that debt reduction, while desirable in principle, is unlikely in practice. Historically, countries have been able to [eliminate debt and sustain large surpluses] only when there exists political solidarity at the national level and when economic growth is strong… Looking forward, the challenges are daunting. Given ageing populations, governments will have to find additional finance for healthcare and pensions. They will have to finance spending on defense, climate change abatement and adaptation, and the digital transition. 

Living with high public debt therefore means avoiding steps that make a bad situation worse. This means minimizing unproductive public spending. It means targeting social transfers as a way of limiting pressures on the expenditure side… It means contemplating tax increases where revenues are low by international standards…This modest medicine does not make for a happy diagnosis. But it makes for a realistic one.” - Living with High Public Debt by Serkan Arslanalp and Barry Eichengreen. August 2023.

How bad it the US debt? As a percent of US GDP, pretty goddamn awful:

Okay, so the federal debt has been growing for more than 50 years but the US has managed rather well during much of that time. That’s largely because US economic growth outpaced the cost of interest on the debt over the same period. Unfortunately, economic growth is set for a prolonged slowdown, thanks to an aging population. Plus, interest payments on the federal debt are skyrocketing:

And the situation is only going to get worse:

As a recent analysis from Peter G. Peterson Foundation puts it:

“Rising interest payments can crowd out other priorities in the federal budget and lead to a cycle of higher deficits, growing debt, and even more interest payments in the future…As interest costs rise, so too will the gap between federal spending and revenues. In fact, CBO [Congressional Budget Office] projects that interest costs alone will account for 38 percent of federal revenues by 2053, significantly exceeding the level of 10 percent recorded in 2022.”

Sounds rather hopeless. But I love a challenge.

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Next: Raising taxes without undermining economic growth.

After that: Growing the economy.

And then: Managing political divisions for the common good.