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'Planet Money': How much national debt is too much?


According to the Treasury Department, America's national debt is well over $27 trillion and rising. Is that too much? That's a hard question. Keith Romer from our Planet Money team tells us how economists' answer to that question has changed over the years.

KEITH ROMER, BYLINE: Our journey starts in 2010 with a paper from Carmen Reinhart and Ken Rogoff that analyzed decades of data from 20 advanced economies. It compared national debt to gross domestic product, the value of every good or service a country produces for an entire year. Karen Dynan, current Harvard professor, former chief economist at the Department of Treasury, says one number in the paper really stuck in people's minds.

KAREN DYNAN: The statistic that caught so much attention was that they had a result that suggested that when a country has debt that is equivalent to 90% of their GDP, that their growth rate would be half of what it would be in times when debt was at a more normal level.

ROMER: Back then, Dynan wasn't especially worried about U.S. debt levels, but lots of people used the paper to argue for spending cuts. Now, subsequent research would go on to really complicate the paper's findings. Today, paper author Ken Rogoff acknowledges that the debt over 90% of GDP line was not, in fact, some magic threshold that applied to all countries in all situations.

KEN ROGOFF: But I do want to qualify that a little bit by saying to say therefore there's no threshold, therefore any level of debt is fine - that's kind of nuts also.

ROMER: Right now, U.S. national debt equals 97% of GDP. But also concerning to Rogoff is how much our large budget deficits are adding to that number every year. The more we borrow, the more interest we have to pay on our debt, which can force us to borrow even more.

ROGOFF: I think if you look at where the United States is today, we're probably on a trajectory that needs to get adjusted, and it's not just our debt. It's our Social Security, our medical care, everything.

ROMER: Without any changes to spending or tax rates, the Congressional Budget Office projects U.S. debt will pass 115% of GDP in 2033 and 180% sometime in the next 30 years. These days, even Karen Dynan is worried about the debt.

DYNAN: Policymakers need to be honest about, you know, what's on the horizon in terms of national debt and the fact that we are on an unsustainable path.

ROMER: Dynan thinks that even though economists can't say what the threshold is for when debt will hurt economic growth, we might be better off if we all pretended they could.

DYNAN: Even though I don't think there is a magic level, I do feel like if there was some level we knew about, it could then kind of be constructive politically and get people to face up to the hard decisions they're going to need to make.

ROMER: Like, you kind of wish there was one.

DYNAN: Yeah. Yeah.

ROMER: But will she be the one to make up that magic threshold?

DYNAN: No. I mean, I can't tell you that number.

ROMER: Is it 125% of GDP?

DYNAN: (Laughter) Sorry. I'm not answering that question.

ROMER: Keith Romer, NPR News.

(SOUNDBITE OF SIMON & GARFUNKEL'S "ANJI") Transcript provided by NPR, Copyright NPR.

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Keith Romer
[Copyright 2024 NPR]