Bless Scott Sumner's heart. The problem really started with the two wars Bush Jr. got us into, but it really accelerated with the response to the Great Recession. There was no "economic boom in the early 2010s nor the late 2010s and, worse, there was idiotic response to COVID-19 that continues to this day.
The country is f****d. Governments only do hard defaults when they have borrowed in some other country's currency- when they borrow in their own currency, they always choose inflation over default. So will we. At some point, whatever independence remains with the Federal Reserve will be taken away and the central bank will be forced to finance all of the debt. I predict the Fed's balance sheet will be $25 trillion a decade from now, and $100 trillion a decade after that. Unlike Japan, this won't work because too much of the US debt is owed to foreigners. All those oversea dollars will come crashing ashore in a tsunami as people try to exchange the dollars and bonds for hard assets anywhere on the planet.
I'd no idea that GWB destroyed the WTC and killed 3K Americans. Seems like the Taliban and AQ got us into Afghanistan.
Iraq is a little more complex, of course, but I think that Saddam Hussein's repeated wars on his neighbors, his attempt to kill an American President and refusal to abide by his armistice obligations should lead the list of contributing factors.
While both Afghanistan and Iraq cost a fair amount of money by ordinary standards, neither is a real threat to fiscal stability as the expenditures were limited in nature and duration. That is, they were not eternal, ever-growing govt programs.
The Taliban retook control of Afghanistan as soon as we left, and getting rid of Saddam Hussein did not turn Iraq into a stable democracy (same with Gaddafi and Libya). Arnold Kling has written multiple times about his opposition to the Vietnam War and how it shaped his thinking, but almost every single war since Vietnam -- Iraq 2, Afghanistan, Libya, Syria -- has also been an unmitigated waste of money, resources, life and limb, yet he likes this comment. Individual wars may be of limited duration, and therefore do not threaten fiscal stability to the same extent as entitlements, but if we are always at war with one or more countries (the latest is Ukraine, but the Syrian war for 'regime change' is still ongoing), then over time it adds up. As long as we are fantasizing about entitlement reform, let's not ring fence defense spending, much of which is unnecessary and wasteful. Our military procurement process wastes enormous amounts of money on boondoggles (the F-35), equipment that is not suitable for real war conditions (the F-16 needs pristine runways), and much of it can't be produced in quantities that would be needed for an extended war with a peer competitor. Technological change has rendered certain types of equipment obsolete (aircraft carriers are sitting ducks with foes that have satellite surveillance and the ability to retaliate with precision-guided missiles), but we still waste money producing them because Congress won't let DoD cut back on them. No doubt the Uniparty will cut entitlements before defense spending, and that will make Kling happy, but I disagree.
Boy, you are long winded, Koshmap. (No offense intended.)
I will try to succinctly restate your point.
You want to redefine the original issue, which is whether GWB "got us into" Afghanistan and Iraq and whether these wars "started" our fiscal problems. You also prattle on about wasteful spending, but that is beside the point as it doesn't really affect the fiscal situation in any serious way.
If you looked at the data, you'd find that "all the wars since Vietnam" were fought for different reasons and none of them -- or even all of them together -- seriously affect our fiscal situation because they are limited in time and cost.
You seem to be having an emotional reaction to the idea of all these "wars." (Egad! A government fighting wars?) In truth, the world is a troublesome place and while we could have declined to fight some or all of these wars, we could so so only at the risk of greater trouble down the line. If we hadn't toppled the Taliban, for example, Al Qaeda would have had a permanent base for terror attacks across the world. If we hadn't toppled Saddam Hussein, he'd have continued to invade neighbors, kill his own people and sponsor terror -- and we'd have let everyone know that you can eff with the US as much as you'd like.
Maybe the better course would have been to let some or all of these wars go, but let's not pretend that was or is obvious.
You isolationists think that the rest of the world will leave us alone if we just keep to ourselves. History teaches us that this is nonsense. See our policy in the 1930s for a recent example.
The problems started before GWB and the war spending (Though that didn't help)- the 'stable' debt to GDP of the '90s was a fiction where we counted SS receipts as income but not the far out liabilities that came with them. There has been an enormous amount of wasteful spending on top of that, but the US fiscal situation was already unstable in the long run in the late 90s, we are only pulling the eventual crisis forward with the extra spending.
My cast of villain's does include GEB but for his insane tax cuts that ruined Clintons' surplus that undid the damage of the Reagan tax cuts and moves on the the Ryan-Trump "Tax Cuts for the Rich and Deficits Act of 2017."
1 - If you look at the numbers, the Clinton surplus can be explained by cuts in defense spending as a % of GDP and maybe also the shortening of average debt maturity to reduce interest rates. These were changes that are impossible to repeat.
2 - If you go to Kling's AEI article you see that in 2007 there was a primary surplus. Doesn't mean GWB's tax cut was good but surely casts doubt that it was insane or ruinous.
"In fiscal year 2007, the federal government actually ran a primary surplus of $76 billion, and the ratio of debt to GDP fell to 36.2 percent.
3 - For sure it is inexact, in part due to rolling implementation and expiration of Trump tax cuts, but explain to me how you see a bigger tax cut for the rich than others in the data.
I would too. I think I long ago heard how they assign corporate and other taxes to income brackets but I can't even remember the extent to which it is based on data or a subjective estimate. Even if it is wholly subjective I'm inclined to believe it wouldn't significantly change the final result.
With US debt at 106%, but Japan at 250+%, I am not convinced that huge debt/GDP levels are unsustainable for 10, 20, or 30 years. I support, tho less strongly than ever, a Balanced Budget, but it’s not politically feasible.
There is no 1 year or 10 year risk free rate, and never has been tho finance professors have pretended/ claimed there was.
US govt wasteful spending is a far bigger problem, like stupid student loan payoffs, and most homelessness help that fails build housing. Contra Nikki Haley a bit, higher deficits thru tax cuts are much faster and economically healthy, and less wasteful than Dem deficits thru new spending.
Central banks are buying gold, Balaj and many are buying crypto, normal folk are buying real estate, tho not big city office space, all as risky alternatives to the low risk US bonds.
The US mess is yet still less bad than other countries, tho the voter addiction to free govt cash gets stronger each year. I plan on singing a karaoke version of “Jane Says”, relevant for all addicts, “I’m gonna kick tomorrow”.
The difference between the US and Japan is that the Japanese are prodigious savers. They really do owe their debt to themselves, whereas we owe a large fraction of ours to the rest of the world, including the Japanese.
The Japanese also had nigh on 30 years of stagnant economic growth, and the resulting social dysfunctions. Even owing your debt to yourself has some serious consequences.
In real terms, how stagnant has it been in Japan? Until just the last year, inflation in Japan has been near zero for 20 years. Whatever GDP growth per capita they have had is real growth, not mostly nominal, at least when measured at constant prices. I am asking because I don't know.
That doesn't look too bad, but then Japan's GDP per capita was only about 25K in 1980 and is up around 35K now. With a very age heavy population, to boot.
Also, that is supposedly adjusted for inflation, but I am always leery of how well that is done.
Your post is an example of the political problem. We agree about lower deficits but differ about whether more revenue or less expenditure it the way to achieve it.
There ought to be "rule" that no one can mention debts or deficits w/o adding at least one specific tax or spending decision that they would like to see changed. :)
Re: "there is no precedent for reducing the ratio of debt to GDP by simply growing our way out of it. Instead, policy choices must be made in order to restore a primary surplus."
Sobering.
And trends in the politics of regulation and of trade restriction won't help.
New tech like AI and gene-editing probably will take a long time to get traction, and might even get hamstrung by regs.
"I was one of those who was a fiscal hawk twenty years ago."
A sincere fiscal hawk would scorecard political candidates and policy choices and work to create political incentives for fiscal restraint. Kling doesn't do this. Kling is more focused on dinging both sides. Sure, Kling writes posts encouraging fiscal restraint, and Kling labels himself a fiscal hawk, but his actions don't back this up.
During the Obama Administration, CATO actually put some serious effort into promoting government fiscal restraint including supporting the Tea Party. Then Charles Koch decided his efforts at promoting fiscal restraint were a failure and he dropped support for the issue and focused on left-wing friendly issues like increasing immigration and criminal justice reforms.
The big donor groups dropped pressure for fiscal restraint, and politicians responded to the demands of the competitive political areana, and made less serious attempts to cater to fiscal restraint. Kling can pat himself on the back and link old posts, but these posts cost nothing to write.
Kling says we should have raised the retirement age in the past and now it's too late. I agree. It's better late than never. Also, this isn't a winning issue with strong voter support. The big donors have lost interest in supporting this. To a self-interested politician fiscal restraint is a losing issue, and we shouldn't expect career politicians to be anything but self-interested.
Maybe my knowledge is too limited but I'm thinking the countries that devalued in the past have had a lot of economic problems besides their national debt. I'm guessing a little but their problem wasn't so much the debt as poor and deteriorating economic performance relative to other countries. That's not really an issue for the US and I'm a little skeptical it will be.
My other concern with your viewpoint is that it seems to entirely ignore spending. I'm not saying the recent explosion in debt doesn't have downsides and carry risks but did you really paint a complete and accurate picture? For example, how much would the WWII debt come down if there had been more pressure to control spending? While it is true that we have some entitlement obligations which will grow with limited options for controlling that growth (higher retirement age, increased means testing, etc ), it is not a given that the overall spending has to increase as much as it has in the past.similarly, it would seem there is also a bit of room for tax increases too. I'm not saying there won't be a bit of pain but I see no reason to assume there will be catastrophe. I'd bet the odds are against coming any closer to it than we have since the great depression, which I'd agree qualified as a catastrophe.
All increases in taxes have bad effects, and are very politically unpopular. (No mention of which ones, yet a prior suggested rule? Common for Dems to push rules that “don’t apply to them”)
Higher progressive corporate taxes, with revenue brackets and market capitalization brackets, seem more politically feasible. BIG business is short term Econ efficient, but long term creating too much rent seeking like behavior such as regs to restrict competitors.
With money having two functions, supporting transactions and as store of value, the government can print money effectively stealing (taxing) the value of money and depreciating the value. With the US government stealing value from the whole world using dollars for a store of value, the world is paying a high price for the dollar denominated world. If a Country like China makes a true stable value currency it could replace the dollar. Supporting transactions in the modern days of digital communication just requires stable value to work as money and the rest of the world may get tired of paying an inflation tax on the dollars.
Perhaps we should store value in the form of steel rebar like I observed people doing when Brazil stole the value of their currency. They would store the steel whose value is related to production cost that is highly determine by energy and raw materials costs.
changes in debt to GDP ratio are a function of primary surplus and the difference between nominal GDP and the cost of debt. the recent inflation spike has been a deliberate choice to avoid acting on budget deficits for political reasons. and you are right, in the 70ies many governments in the world opted for defined benefit pension schemes, overlapping generations when it was clear that demographic trends would have turned.
Our politicians will never reduce spending or significantly increase taxation (except on a few disfavored constituencies like "billionaires", which will not be significant), for the simple reason that these things are quite popular. So our debt will continue to balloon. This i much is depressingly obvious. But can smarter people than me (like Mr. Kling) play out the rest of the scenario? Default or de facto default (through inflation, whether deliberate or indirect result of overspending) both seem really bad, and it seems to me are not mutually exclusive. I I just can't conceive of it. When Greece defaults, Germany can bail them out. When the US defaults, we are simply too big for anyone to bail us out. So to me Greece-style austerity and stagnation and generalized poverty seems like a best-case scenario. What am I getting wrong?
One can make a sociological analogy with advocacy for measures to mitigate climate change. There was a smallish, contrarian faction calling for prudential sacrifices to head off the long-term threat of a warming climate twenty years ago-- a faction almost totally disjoint demographically and politically from that calling for fiscal austerity. They are also prone to say "I told you so" today and to wish people had listened to them back then so we could have taken much less costly early actions.
Why are these groups almost disjoint, despite operating on at least superficially similar mindsets around the necessity for prudential action to stave off long-term systemic risks? You can of course tell all sorts of psychologically pleasing just so stories to draw distinctions between the two problems; but I think we could draw some useful insights from a comparison that strives to avoid our confirmation biases.
Also, it sounds like growth did help with the debt, to the tune of about 30 percent of GDP in the measured period. It just takes time and other factors combined had a slightly greater effect. Not sure what rule says it has to happen quickly for it to count.
Sumner is pointing out that the big problem is the "fuel on the fire" fiscal policy that Trump initiated and Biden has continued. That's not what the early 21st century hawks were worrying about, so I don't see how any of what's happening now vindicates that position.
It may also be the case that entitlements are a ticking bomb, but that has yet to be seen. If things get to that point, for that reason, then I will consider the old school hawk view confirmed.
To me this is a very hopeful post. It means you look around and see a country where in 15, twenty years - the people who live in the US will still be invested in counting this stuff.
"...the best way to ensure fiscal solvency was to raise the age of eligibility for Social Security and Medicare. We should have done that before the Baby Boomers were on the verge of retirement. Now it’s too late." It's too late to raise the retirement age for Baby Boomers, but now is the time to fix the problem for the long-run future given where we are today. Medicare is the bigger problem because it involves spending real resources, not simply redistributing funds as Social Security does. Fixing Soc. Sec. and Medicare / Medicaid are matters of political will or lack thereof, but conceptually and financially are easy problems to solve.
Bless Scott Sumner's heart. The problem really started with the two wars Bush Jr. got us into, but it really accelerated with the response to the Great Recession. There was no "economic boom in the early 2010s nor the late 2010s and, worse, there was idiotic response to COVID-19 that continues to this day.
The country is f****d. Governments only do hard defaults when they have borrowed in some other country's currency- when they borrow in their own currency, they always choose inflation over default. So will we. At some point, whatever independence remains with the Federal Reserve will be taken away and the central bank will be forced to finance all of the debt. I predict the Fed's balance sheet will be $25 trillion a decade from now, and $100 trillion a decade after that. Unlike Japan, this won't work because too much of the US debt is owed to foreigners. All those oversea dollars will come crashing ashore in a tsunami as people try to exchange the dollars and bonds for hard assets anywhere on the planet.
The two wars that GWB got us into?
I'd no idea that GWB destroyed the WTC and killed 3K Americans. Seems like the Taliban and AQ got us into Afghanistan.
Iraq is a little more complex, of course, but I think that Saddam Hussein's repeated wars on his neighbors, his attempt to kill an American President and refusal to abide by his armistice obligations should lead the list of contributing factors.
While both Afghanistan and Iraq cost a fair amount of money by ordinary standards, neither is a real threat to fiscal stability as the expenditures were limited in nature and duration. That is, they were not eternal, ever-growing govt programs.
The Taliban retook control of Afghanistan as soon as we left, and getting rid of Saddam Hussein did not turn Iraq into a stable democracy (same with Gaddafi and Libya). Arnold Kling has written multiple times about his opposition to the Vietnam War and how it shaped his thinking, but almost every single war since Vietnam -- Iraq 2, Afghanistan, Libya, Syria -- has also been an unmitigated waste of money, resources, life and limb, yet he likes this comment. Individual wars may be of limited duration, and therefore do not threaten fiscal stability to the same extent as entitlements, but if we are always at war with one or more countries (the latest is Ukraine, but the Syrian war for 'regime change' is still ongoing), then over time it adds up. As long as we are fantasizing about entitlement reform, let's not ring fence defense spending, much of which is unnecessary and wasteful. Our military procurement process wastes enormous amounts of money on boondoggles (the F-35), equipment that is not suitable for real war conditions (the F-16 needs pristine runways), and much of it can't be produced in quantities that would be needed for an extended war with a peer competitor. Technological change has rendered certain types of equipment obsolete (aircraft carriers are sitting ducks with foes that have satellite surveillance and the ability to retaliate with precision-guided missiles), but we still waste money producing them because Congress won't let DoD cut back on them. No doubt the Uniparty will cut entitlements before defense spending, and that will make Kling happy, but I disagree.
Boy, you are long winded, Koshmap. (No offense intended.)
I will try to succinctly restate your point.
You want to redefine the original issue, which is whether GWB "got us into" Afghanistan and Iraq and whether these wars "started" our fiscal problems. You also prattle on about wasteful spending, but that is beside the point as it doesn't really affect the fiscal situation in any serious way.
If you looked at the data, you'd find that "all the wars since Vietnam" were fought for different reasons and none of them -- or even all of them together -- seriously affect our fiscal situation because they are limited in time and cost.
You seem to be having an emotional reaction to the idea of all these "wars." (Egad! A government fighting wars?) In truth, the world is a troublesome place and while we could have declined to fight some or all of these wars, we could so so only at the risk of greater trouble down the line. If we hadn't toppled the Taliban, for example, Al Qaeda would have had a permanent base for terror attacks across the world. If we hadn't toppled Saddam Hussein, he'd have continued to invade neighbors, kill his own people and sponsor terror -- and we'd have let everyone know that you can eff with the US as much as you'd like.
Maybe the better course would have been to let some or all of these wars go, but let's not pretend that was or is obvious.
You isolationists think that the rest of the world will leave us alone if we just keep to ourselves. History teaches us that this is nonsense. See our policy in the 1930s for a recent example.
https://asiatimes.com/2023/09/how-us-navy-wasted-billions-on-little-crappy-ships/
No doubt. We can agree that the LCS has been a disaster.
But I don't know how it relates to our discussion.
But you save that link for the next time you run into someone who says that the Pentagon never buys expensive but useless weapons.
The problems started before GWB and the war spending (Though that didn't help)- the 'stable' debt to GDP of the '90s was a fiction where we counted SS receipts as income but not the far out liabilities that came with them. There has been an enormous amount of wasteful spending on top of that, but the US fiscal situation was already unstable in the long run in the late 90s, we are only pulling the eventual crisis forward with the extra spending.
Producing a truly frightening trade surplus. :)
My cast of villain's does include GEB but for his insane tax cuts that ruined Clintons' surplus that undid the damage of the Reagan tax cuts and moves on the the Ryan-Trump "Tax Cuts for the Rich and Deficits Act of 2017."
1 - If you look at the numbers, the Clinton surplus can be explained by cuts in defense spending as a % of GDP and maybe also the shortening of average debt maturity to reduce interest rates. These were changes that are impossible to repeat.
2 - If you go to Kling's AEI article you see that in 2007 there was a primary surplus. Doesn't mean GWB's tax cut was good but surely casts doubt that it was insane or ruinous.
"In fiscal year 2007, the federal government actually ran a primary surplus of $76 billion, and the ratio of debt to GDP fell to 36.2 percent.
3 - For sure it is inexact, in part due to rolling implementation and expiration of Trump tax cuts, but explain to me how you see a bigger tax cut for the rich than others in the data.
https://www.taxpolicycenter.org/statistics/historical-average-federal-tax-rates-all-households
https://www.taxpolicycenter.org/statistics/historical-shares-federal-tax-liabilities-all-households
I assume that share ownership is pretty highly correlated with income
I would too. I think I long ago heard how they assign corporate and other taxes to income brackets but I can't even remember the extent to which it is based on data or a subjective estimate. Even if it is wholly subjective I'm inclined to believe it wouldn't significantly change the final result.
With US debt at 106%, but Japan at 250+%, I am not convinced that huge debt/GDP levels are unsustainable for 10, 20, or 30 years. I support, tho less strongly than ever, a Balanced Budget, but it’s not politically feasible.
There is no 1 year or 10 year risk free rate, and never has been tho finance professors have pretended/ claimed there was.
US govt wasteful spending is a far bigger problem, like stupid student loan payoffs, and most homelessness help that fails build housing. Contra Nikki Haley a bit, higher deficits thru tax cuts are much faster and economically healthy, and less wasteful than Dem deficits thru new spending.
Central banks are buying gold, Balaj and many are buying crypto, normal folk are buying real estate, tho not big city office space, all as risky alternatives to the low risk US bonds.
The US mess is yet still less bad than other countries, tho the voter addiction to free govt cash gets stronger each year. I plan on singing a karaoke version of “Jane Says”, relevant for all addicts, “I’m gonna kick tomorrow”.
The difference between the US and Japan is that the Japanese are prodigious savers. They really do owe their debt to themselves, whereas we owe a large fraction of ours to the rest of the world, including the Japanese.
The Japanese also had nigh on 30 years of stagnant economic growth, and the resulting social dysfunctions. Even owing your debt to yourself has some serious consequences.
In real terms, how stagnant has it been in Japan? Until just the last year, inflation in Japan has been near zero for 20 years. Whatever GDP growth per capita they have had is real growth, not mostly nominal, at least when measured at constant prices. I am asking because I don't know.
That's a good point. Looking at OurWorldinData here (https://ourworldindata.org/grapher/gdp-per-capita-growth?tab=chart&country=JPN~USA) it looks like Japan's growth dropped off to USA levels in the 80's, and basically has matched our crap growth ever since. They had been up around 10% per year till the 80's.
That doesn't look too bad, but then Japan's GDP per capita was only about 25K in 1980 and is up around 35K now. With a very age heavy population, to boot.
Also, that is supposedly adjusted for inflation, but I am always leery of how well that is done.
Your post is an example of the political problem. We agree about lower deficits but differ about whether more revenue or less expenditure it the way to achieve it.
There ought to be "rule" that no one can mention debts or deficits w/o adding at least one specific tax or spending decision that they would like to see changed. :)
Re: "there is no precedent for reducing the ratio of debt to GDP by simply growing our way out of it. Instead, policy choices must be made in order to restore a primary surplus."
Sobering.
And trends in the politics of regulation and of trade restriction won't help.
New tech like AI and gene-editing probably will take a long time to get traction, and might even get hamstrung by regs.
Yeah, plus they'll probably help people live longer, adding to SS and Medicare/Medicaid entitlements, on net.
"I was one of those who was a fiscal hawk twenty years ago."
A sincere fiscal hawk would scorecard political candidates and policy choices and work to create political incentives for fiscal restraint. Kling doesn't do this. Kling is more focused on dinging both sides. Sure, Kling writes posts encouraging fiscal restraint, and Kling labels himself a fiscal hawk, but his actions don't back this up.
During the Obama Administration, CATO actually put some serious effort into promoting government fiscal restraint including supporting the Tea Party. Then Charles Koch decided his efforts at promoting fiscal restraint were a failure and he dropped support for the issue and focused on left-wing friendly issues like increasing immigration and criminal justice reforms.
https://www.wsj.com/articles/charles-koch-says-his-partisanship-was-a-mistake-11605286893
The big donor groups dropped pressure for fiscal restraint, and politicians responded to the demands of the competitive political areana, and made less serious attempts to cater to fiscal restraint. Kling can pat himself on the back and link old posts, but these posts cost nothing to write.
Kling says we should have raised the retirement age in the past and now it's too late. I agree. It's better late than never. Also, this isn't a winning issue with strong voter support. The big donors have lost interest in supporting this. To a self-interested politician fiscal restraint is a losing issue, and we shouldn't expect career politicians to be anything but self-interested.
Yes equities but not everyone, especially the poor, has economical access.
Maybe my knowledge is too limited but I'm thinking the countries that devalued in the past have had a lot of economic problems besides their national debt. I'm guessing a little but their problem wasn't so much the debt as poor and deteriorating economic performance relative to other countries. That's not really an issue for the US and I'm a little skeptical it will be.
My other concern with your viewpoint is that it seems to entirely ignore spending. I'm not saying the recent explosion in debt doesn't have downsides and carry risks but did you really paint a complete and accurate picture? For example, how much would the WWII debt come down if there had been more pressure to control spending? While it is true that we have some entitlement obligations which will grow with limited options for controlling that growth (higher retirement age, increased means testing, etc ), it is not a given that the overall spending has to increase as much as it has in the past.similarly, it would seem there is also a bit of room for tax increases too. I'm not saying there won't be a bit of pain but I see no reason to assume there will be catastrophe. I'd bet the odds are against coming any closer to it than we have since the great depression, which I'd agree qualified as a catastrophe.
you can default
or you can debase
or you can stop paying government salaries and transfer payments
Or you can collect more taxes.
All increases in taxes have bad effects, and are very politically unpopular. (No mention of which ones, yet a prior suggested rule? Common for Dems to push rules that “don’t apply to them”)
Higher progressive corporate taxes, with revenue brackets and market capitalization brackets, seem more politically feasible. BIG business is short term Econ efficient, but long term creating too much rent seeking like behavior such as regs to restrict competitors.
When have higher taxes resulted in more growth?
With money having two functions, supporting transactions and as store of value, the government can print money effectively stealing (taxing) the value of money and depreciating the value. With the US government stealing value from the whole world using dollars for a store of value, the world is paying a high price for the dollar denominated world. If a Country like China makes a true stable value currency it could replace the dollar. Supporting transactions in the modern days of digital communication just requires stable value to work as money and the rest of the world may get tired of paying an inflation tax on the dollars.
Perhaps we should store value in the form of steel rebar like I observed people doing when Brazil stole the value of their currency. They would store the steel whose value is related to production cost that is highly determine by energy and raw materials costs.
Uses up real resources. Better store value in equites.
changes in debt to GDP ratio are a function of primary surplus and the difference between nominal GDP and the cost of debt. the recent inflation spike has been a deliberate choice to avoid acting on budget deficits for political reasons. and you are right, in the 70ies many governments in the world opted for defined benefit pension schemes, overlapping generations when it was clear that demographic trends would have turned.
Our politicians will never reduce spending or significantly increase taxation (except on a few disfavored constituencies like "billionaires", which will not be significant), for the simple reason that these things are quite popular. So our debt will continue to balloon. This i much is depressingly obvious. But can smarter people than me (like Mr. Kling) play out the rest of the scenario? Default or de facto default (through inflation, whether deliberate or indirect result of overspending) both seem really bad, and it seems to me are not mutually exclusive. I I just can't conceive of it. When Greece defaults, Germany can bail them out. When the US defaults, we are simply too big for anyone to bail us out. So to me Greece-style austerity and stagnation and generalized poverty seems like a best-case scenario. What am I getting wrong?
One can make a sociological analogy with advocacy for measures to mitigate climate change. There was a smallish, contrarian faction calling for prudential sacrifices to head off the long-term threat of a warming climate twenty years ago-- a faction almost totally disjoint demographically and politically from that calling for fiscal austerity. They are also prone to say "I told you so" today and to wish people had listened to them back then so we could have taken much less costly early actions.
Why are these groups almost disjoint, despite operating on at least superficially similar mindsets around the necessity for prudential action to stave off long-term systemic risks? You can of course tell all sorts of psychologically pleasing just so stories to draw distinctions between the two problems; but I think we could draw some useful insights from a comparison that strives to avoid our confirmation biases.
I would argue the start date of parabolic debt growth was 2008, but otherwise spot on.
Also, it sounds like growth did help with the debt, to the tune of about 30 percent of GDP in the measured period. It just takes time and other factors combined had a slightly greater effect. Not sure what rule says it has to happen quickly for it to count.
Sumner is pointing out that the big problem is the "fuel on the fire" fiscal policy that Trump initiated and Biden has continued. That's not what the early 21st century hawks were worrying about, so I don't see how any of what's happening now vindicates that position.
It may also be the case that entitlements are a ticking bomb, but that has yet to be seen. If things get to that point, for that reason, then I will consider the old school hawk view confirmed.
To me this is a very hopeful post. It means you look around and see a country where in 15, twenty years - the people who live in the US will still be invested in counting this stuff.
"...the best way to ensure fiscal solvency was to raise the age of eligibility for Social Security and Medicare. We should have done that before the Baby Boomers were on the verge of retirement. Now it’s too late." It's too late to raise the retirement age for Baby Boomers, but now is the time to fix the problem for the long-run future given where we are today. Medicare is the bigger problem because it involves spending real resources, not simply redistributing funds as Social Security does. Fixing Soc. Sec. and Medicare / Medicaid are matters of political will or lack thereof, but conceptually and financially are easy problems to solve.