What’s at Stake
While there is not yet a consensus regarding the debt threshold, most economists recognize the risks of high debt. As the debt rises, our ability as a nation to continue to borrow money grows more limited. This raises the stakes in two important areas.
Limited Response to Emergencies
The higher the debt, the greater limits there are on the federal government to respond to emergencies, such as natural disasters, wars, and economic recessions. When the economy plunged in 2008, the debt was 39% of GDP and the federal government was able to borrow and spend substantial sums to keep the economic engines of growth running. Should the debt continue its upward march and another economic crisis strikes, it is not clear that as a nation we’ll be able to borrow and spend our way out of it as we’ve done during past crises.
Reduced Public Investment
Federal funding is vital to the economy in a number of areas: military, infrastructure, research and development of new technologies, education, environmental protection and conservation, healthcare, and other important social services. As the debt grows, our ability to fund these and other programs may be severely limited, especially if nothing is done to increase the government’s revenues through higher taxes.
US Global Leadership
Since World War II, the US has been the undisputed global leader in helping to rebuild and develop national economies in Europe and elsewhere around the world. In doing so, our leadership created new markets for the goods and services produced by innovative and industrious American-based companies. This economic engine powered the nation as one of two world superpowers during the Cold War, and carried us through the transition to a multilateral global economy in the 1990s and beyond.
Increased interest payments on the debt have the potential to reduce our ability to sustain and direct the economy into new markets as the government has done historically. Our ability to create and export such markets has been a hallmark of our global leadership and warrants attention to ensure that we never reach the point where we must limit our choices because of high interest payments on the debt.