Why You Shouldn’t Obsess About the National Debt

The United States government is more than $34 trillion in debt. Did you know that our government owes $34 trillion? That’s $34 trillion!

Whenever I write about economic policy, I get a lot of mail and a lot of comments basically asking why I’m not talking more about the national debt. So I thought it might be useful to talk about how I see the issue of public debt and why it doesn’t loom larger in my concerns.

Specifically, let me make three points. First, while $34 trillion is a very large figure, it’s a lot less scary than many imagine if you put it in historical and international context. Second, to the extent debt is a concern, making debt sustainable wouldn’t be at all hard in terms of the straight economics; it’s almost entirely a political problem. Finally, people who claim to be deeply concerned about debt are, all too often, hypocrites — the level of their hypocrisy often reaches the surreal.

How scary is the debt? It’s a big number, even if you exclude debt that is basically money that one arm of the government owes to another — debt held by the public is still around $27 trillion. But our economy is huge, too. Today, debt as a percentage of G.D.P. isn’t unprecedented, even in America: It’s roughly the same as it was at the end of World War II. It’s considerably lower than the corresponding number for Japan right now and far below Britain’s debt ratio at the end of World War II. In none of these cases was there anything resembling a debt crisis.

But haven’t there been many debt crises in history? What about Latin America in the 1980s, southern Europe in 2010-12 and others? Well, almost every debt crisis I’ve been able to find in the historical record involved a country that borrowed in someone else’s currency, which left it vulnerable to a liquidity crunch when lenders for some reason ran for the exits and it couldn’t print cash to pay them off until the panic subsided. In fact, the euro crisis rapidly faded away after Mario Draghi, then the president of the European Central Bank, said three words — “whatever it takes” — implying that the bank would provide cash to debtor nations under stress.

The only clear example I know of a national crisis brought on by high debt owed in the country’s own currency is France in 1926, and that story is extremely complicated.