Why We Need Less Debt, and Fast!

The national debt just hit $20 trillion, but it's much more than just a number. Such a huge debt overhang can have lasting effects on the economy for the next quarter century.

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It was big news when our national debt recently passed the $20 trillion mark. What's less understood is exactly why having such a massive debt is a bad thing. The short answer is that too much debt slows economic growth, reducing living standards.

The sheer size of the existing debt is deeply worrying to economists on both the left and the right, who agree that when debt reaches 90 percent of GDP for five years in a row it means painfully slow growth, creating what's called a "debt overhang."

A group of progressive economists affiliated with the University of Massachusetts predicted in 2013 that a debt burden at that level would result in an annual growth rate of just 2.2 percent, which means economic stagnation and anemic job growth. (Earlier this year, one of those researchers co-authored a paper walking back that claim.)

So when will our debt load cross the 90 percent threshold? It's actually been at more than 100 percent of GDP for years now. Periods of slow growth associated with debt overhangs almost always last more than a decade and sometimes stretch out over a quarter century. That means that in 25 years, the overall economy will be about 75 percent the size it would have been if the government had only gotten the debt in check.

That's not much of a future to look forward to.

Countries like New Zealand, Canada, and Germany have demonstrated that when governments reduce debt good things happen. U.S. spending, by contrast, has been above 20 percent of GDP for years, which is well above the historical average. No wonder the Congressional Budget Office predicts that the economy will grow less than 2 percent annually over the next decade. Compare that to growth rates of more than 3 percent for much of the post-World War II period.

Barack Obama, and George W. Bush were leaders who lacked the integrity to do what's best for the country by keeping spending and debt in line. President Donald Trump also shows no interest in explaining to the public how runaway debt chokes off the future. That's a failure which we'll all be paying for for a very long time to come.

Edited by Mark McDaniel. Written by Nick Gillespie. Graphics by McDaniel and Meredith Bragg. Cameras by Jim Epstein and Alexis Garcia.