The Times today ran a truly execrable article warning us that, once the virus has passed, we will suffer dire consequences from the runup of government debt. As most readers know, this argument is theoretically illiterate, derived from the false comparison between household and government debt. We’ve been through this many times before, and I have nothing to add.
I do want to focus on one sentence, however, to illustrate how intellectual blinders can lead to absurd conclusions.
To quote the author, Carl Hulse, “In other words, the bill will come due, as it always does.”
Does it? Check out total Federal debt measured as a percent of GDP:
As you can see, it skyrocketed during the 1940s, when the US went to war against Germany, Italy and Japan. By the time the war was over it was at an all-time high. Yes, we had to borrow to produce all the war materiel and send millions of troops around the world; no one doubts that. But after V-E and V-J, how were public finances affected?
For the answer, take a look at the federal budget surplus or deficit as a percent of GDP:
Well, we ran a surplus for a few years after the war, hardly of the same caliber as the wartime deficits, and then it was business as usual: mostly modest deficits with the occasional surplus or breakeven year. So when did we “pay off” all those war bonds? Never. We just rolled them over and regularly added more debt along the way. Nominal growth took care of it.
So no, the bill will not come due, as it didn’t before.
1980! Was it Tip O’neill that said “Deficits As Far As The Eye Can See?” The graph sure looks like he was right. Was that the era when “Tax Cuts Pay For Themselves” started? I think JFK’s cut started it.
Time to reëlect Bill Clinton.
This ramp up is bad when payment comes due. WWII debt was part of the fiscal problems faced in the mid-late 60’s, which unbound bw. It lowers the ability to borrow later on. This is worse, far worse than 2008-11.