The federal government faces a national debt crisis like never before in its history. Most economists from across the political spectrum agree that the deficit is out of control and leading the country on the road to disaster. Enter Nobel Prize-winning economist and unrepentant polemicist Paul Krugman, who recently took it upon himself to assure his readers in the New York Times that the national debt is not a problem — and, if it is a problem, it’s all Republicans’ fault.
The arguments Krugman puts forward to try to assuage fears of a debt disaster are remarkable for how unconvincing they are under closer scrutiny. First, he argues that the overall size of the national debt is less relevant than the debt-to-GDP ratio, a valid point. But Krugman then goes on to note that the debt-to-GDP ratio was this high once before — right after World War II.
The problem there is that by 1945, the debt-to-GDP ratio had nearly tripled over the course of just four years as the country engaged in the greatest mobilization of society and industry in its history. This time, the national debt has been steadily climbing over the course of two decades. Though exacerbated by the Great Recession and the COVID pandemic, the upward trend is visible in better years as well. Certainly, we have nothing like the defeat of Nazi Germany and Imperial Japan to show for our overspending this time.
Also, by focusing on the current debt-to-GDP ratio, Krugman is looking at the tip of the iceberg. Though he makes a cursory mention of problems down the line, it comes nowhere close to doing justice to the scope of the problem. Thirty years from now, ballooning spending on Medicare/Medicaid, Social Security, and interest on the national debt are set to put debt-to-GDP figures from 1945 to shame.
In 2054, the nonpartisan Congressional Budget Office (CBO) estimates that the debt-to-GDP ratio will be 166 percent, compared to 103 percent in 1945. And that’s naively assuming Congress doesn’t come up with new initiatives to increase the deficit even faster — an area in which progressives have no shortage of ideas.
But even noting all that, Krugman argues that there’s an easy fix, and not to worry. All Congress would need to do to stabilize (note: not reduce) the debt-to-GDP ratio would be to cut the deficit by 2.1 percent each year. He’s working off data from the left-wing Center for American Progress which imagines that there are no negative economic consequences to massive amounts of debt. But even their non-doctored number of 2.9 percent of GDP each year sounds manageable, right?
Well, reducing deficits by 2.9 percent of GDP each year over the next thirty years translates to reductions of over $45 trillion, or more than 40 percent of the projected deficit over that period. This year alone, Congress would have to cut $782 billion from the deficit — just slightly less than our entire national defense budget. Congress struggles just to avoid increasing the deficit every year, imagining that it can easily find the willpower to cut the equivalent of the military budget on a permanent basis is ludicrous. And even if such willpower existed, it would do nothing to reduce our debt-to-GDP ratio or leave us any room to respond to unexpected fiscal challenges or crises.
Yet despite the fact that federal revenues as a percentage of GDP have stayed nearly constant over the past six decades, and are on track to increase over the next three, progressives can’t stop blaming tax cuts. Krugman points in particular to Republicans’ desire to extend many of the individual provisions of the 2017 tax cut set to expire next year. That’s despite the fact that Democrats have consistently opposed extending revenue-positive provisions such as extending the cap to the State and Local Tax (SALT) deduction and supported provisions such as the pandemic-level expanded Child Tax Credit.
In any case, Krugman’s accusations of debt hypocrisy against conservatives are particularly hard to take seriously given his well-publicized habit of downplaying the debt when a Democrat inhabits the White House and predicting debt disaster when a Republican happens to.
Real, meaningful fiscal reform will require some very difficult decisions, and a willingness to touch politically untouchable programs like entitlements. It will require bipartisan cooperation and sacrifices of both parties’ sacred fiscal cows. For someone like Krugman who must know better to use his platform to minimize the scope of the problem and hand-wave the effort required to address it is more than just foolish — it is downright dangerous.
