“The sky is falling! The sky is falling! The national debt is too high and the economy is going to collapse!”
The country hears this tired refrain from conservative politicians every single time there’s a Democrat in the White House. It’s a cynical political tactic to promote cuts to government spending, and most of the country has learned to tune their predictions out by now.
But lately, this doomsday cult has a few new acolytes — the editorial boards of three of the largest and most influential newspapers in the country.
The Washington Post, the New York Times and the Wall Street Journal have all recently published editorials claiming that the sky is falling because of supposedly ballooning federal debt. Their message, although framed in a veneer of impartiality, mirrors that of the most aggressive conservative commentators: Unless benefits for people in need are cut now, we’ll need even more painful cuts in the future.
They couldn’t be further from the truth. For all their claims that the federal debt is out of control, the truth is the exact opposite — thanks to raised interest rates and inflation, the federal government’s books are actually in a significantly better place than they were just a few years ago.
Imagine if you were on the hook for a lot of debt at very low-interest rates at a time when market interest rates and inflation both ticked up. That’s a good place to be, right? The real value of your debts drops precipitously. You can either pay your debts off immediately at a discount, because increased interest rates make your low-interest loans less valuable, or you could continue paying them off over time with dollars that, because of inflation, are worth less than the dollars that you borrowed years ago. Either way you, as a borrower, come out ahead; the lenders lose out.
That’s exactly the position the United States Treasury finds itself in. Two years ago, in June of 2021, the value of all federal debt not owed to the government itself was, according to the Dallas Fed, about $22.64 trillion. Two years later, despite several trillion dollars of additional borrowing, that number has barely increased at all, to only about $22.86 trillion. During that same time, according to the St. Louis Fed, our gross domestic product has increased from $23.05 trillion to $26.80 trillion.
When you do the math, you see that the ratio of debt to GDP, which many economists consider to be a much more important number than total debt, has actually decreased over the last two years, from 98.2 percent to 85.3 percent.
That’s a huge decrease. If anything, the media should be celebrating America’s improving debt situation. Instead, their strenuous efforts to paint as grim a picture as possible have become almost comical. The Post, for example, stresses how the deficit shouldn’t rise so sharply in a “good economic year,” with higher tax revenue and fewer people requiring government aid. Then, a few paragraphs later, it explains that the economy in 2022 wasn’t all that good for tax receipts, with slumping home sales and the worst stock market performance since 2008.
There’s a great deal of misinformation around what the national debt means, and why deficit spending exists in the first place. It’s certainly true that deficit spending can create an issue if the federal government puts too much money into the global economy. It can devalue the dollar and contribute to inflation. But deficit spending also serves an important purpose in our economy. Treasury securities held by the public are part of the money supply. They provide liquidity. As the economy grows, we need more, not fewer, Treasury securities outstanding. And, with the U.S. dollar serving as the primary reserve currency for the world economy, as the global economy expands, foreign governments will need to increase their holdings of U.S. treasury securities proportionately.
Despite higher-than-ideal levels of inflation still lingering, there’s no indication we’re close to the point where the deficit is part of the problem. The most often cited measure of the money supply, the M2, actually declined by nearly $1 trillion between May of last year and April of this year. Historically, that level of short-term decline is unprecedented.
To put it bluntly, the sky is not falling. If anything, it’s lifted a few feet over the last few years. There’s no reason to panic, and for the nation’s leading newspapers to misrepresent the long-term trend of the national debt to promote painful austerity measures is beyond irresponsible. To do so when the most recent measure of children living in poverty has more than doubled is downright inhumane.
We’re not saying that policymakers should ignore the projected increase in the national debt. But they should place it in the proper context, and stop reinforcing efforts by the most ghoulish political operatives to use a manufactured crisis to cut important programs that millions of poor Americans rely on.
Morris Pearl is the chair of Patriotic Millionaires and a former managing director at BlackRock. Bob Lord is the senior tax policy advisor at Patriotic Millionaires.