Skyrocketing U.S. debt has sparked growing concern on Wall Street, but economist Paul Krugman isn’t worried and said you shouldn’t be either.
In a New York Times opinion article On Thursday, the Nobel laureate wrote that while $34 trillion is a record, debt as a percentage of GDP is roughly the levels seen at the end of World War II and is well below the burden of the Japan’s current debt as well as the UK’s post-war level, neither. which triggered a debt crisis.
Most historical examples of debt crises took place in countries that borrowed in another country’s currency, he added.
Certainly, debt has been skyrocketing for decades. But those who worry about U.S. debt levels today note that while it increased during the pandemic emergency when the federal government sought to support the economy, the debt continued to pile up. without comparable urgency, let alone a global calamity on a global scale. Second war.
At the same time, the evolution of deficits and debt in the decades to come scares investors and policymakers more than current levels.
Krugman pointed out that unlike individuals, governments are not obligated to repay all of their debts.
“How did we pay off the debt from World War II? We didn’t,” he wrote. “When John F. Kennedy took office, the federal debt was slightly higher than it had been in 1946. But the debt as a percentage of GDP was much lower, thanks to growth and inflation.”
Of course, the United States still has to pay interest and maturing Treasury bills, and the cost of servicing all that debt spending is expected to exceed defense spending this year.
How to pay off American debt
But according to Krugman, the key is to stabilize debt as a percentage of GDP rather than paying it all off, and he pointed to a recent study by the left-wing party. Center for American Progress which estimates that the United States must raise taxes or cut spending by 2.1% of GDP to achieve this.
“It’s not a big number!” he added.
Tax revenue collected by the U.S. government as a percentage of GDP is lower than in other rich countries, and raising it enough to stabilize the debt is unlikely to hurt growth, Krugman said.
Since the economics of debt stabilization are relatively simple, the main obstacle is political, he explained.
“With political will, we could resolve the debt problems quite easily,” he wrote. “To the extent that the debt is a problem, it reflects political dysfunction, primarily the radicalization of the GOP. This radicalization worries me deeply for several reasons, starting with the fate of democracy, and the federal debt is far from be at the top of the list.
The United States’ deepening debt and deficit have raised new alarm bells, and the U.S. presidential election has raised the stakes.
Last month, ‘Bond king’ Bill Gross warns Donald Trump will make deficits worse and being “more disruptive” to the bond market than Joe Biden.
Elsewhere on Wall Street, Larry Fink, CEO of BlackRock, sounded the alarm in March, joining JPMorgan CEO Jamie Dimon And…
