Should We Worry about National Debt?
Nobel Prize winner in economics, Paul Krugman, says no in his latest NY Times blog,
So, about that supposed debt crisis: right now we have a more or less stable ratio of debt to GDP, and no hint of a financing problem. So claims that we are facing something terrible rest on the presumption that the budget situation will worsen dramatically over time. How sure are we about that? Less than you may imagine.
His article begins by pointing out exactly why all this worry about debt matters,
because they divert and distract attention from much more deserving problems, depriving crucial issues of political oxygen.
You saw that in the debates: four, count them, four questions about debt from the CRFB, not one about climate change. And you see it again in today’s Times, with Pete Peterson (of course) and Paul Volcker (sigh) lecturing us about the usual stuff.
What’s so bad about this kind of deficit scolding? It’s deeply misleading on two levels: the problem it purports to lay out is far less clearly a major issue than the scolds claim, and the insistence that we need immediate action is just incoherent.
His analysis matches up with the extensive data Thomas Piketty assembled in his wonderful book Capital in the Twenty-First Century. In that tour de force of economic history, he points out that many nations have operated with debt to GDP ratios much higher than what the United States is currently or likely to face in the near future. Examples include Britain, France, and Japan after their great wars where the ratios approached close two for Japan and hovered over 1.5 for Britain and Japan. As one can see above, the United States hasn't reached a ratio of one yet, let alone the much higher values of the example countries above that are all doing fine today.