The importance of debt and deficits is currently being debated. Serious efforts to grapple with this challenging issue point, for example, to long-term structural declines in interest rates as an argument that the U.S. is well positioned to handle debt increases due to relatively cheaper financing. Or that corporate balance sheets today suggest that public debt is not crowding out private investment in the way that standard economic logic suggests it would. Or that the historical norm for the U.S. finds the interest rate below the growth rate, which implies that additional debt can be issued without the need for taxes to be increased in the future.


(Unserious efforts include “modern monetary theory,” which downplays the inflation risk of running the printing press and argues that fiscal policy is a deft instrument for maintaining price stability.)

I’m not yet sold that the wisest course is to rethink the policy response to debt and deficits, though I am intrigued. I’m also interested in the politics of all this. Certainly we are seeing the political left show less concern about deficits, and as the 2020 Democratic party presidential primary continues to heat up, I expect this feature will only become more prominent. And when the GOP is in power it has repeatedly shown a willingness to pile up debt, most recently as part of the 2017 tax law.

But we have also been living through a period of low interest rates, which makes financing the debt politically easier.


The most recent projections from the non-partisan Congressional Budget Office show that over the next ten years, interest payments on the national debt will grow significantly faster than health and retirement programs, defense spending, and other discretionary spending.

Interest payments on the national debt are projected to increase at a much faster rate over the next ten years than other major spending categories. pic.twitter.com/42UiXO8zmZ — Michael R. Strain (@MichaelRStrain) January 31, 2019

To make this more concrete, consider: By 2025, CBO forecasts that the U.S. will spend more on interest payments than on national defense.

Expect politicians to take notice.