Must-read: Noah Smith: “America Isn’t Going Broke”

Must-Read: Noah Smith: America Isn’t Going Broke: “The U.S. government isn’t insolvent…

…Insolvency… [is] when liabilities are greater than assets. That’s very basic accounting. One of the U.S. government’s assets is its ability to tax…. The national debt–which includes debt held by the public and money owed to other branches of the government–is only equal to about six years’ worth of tax revenue. If the U.S. devoted a fifth of tax revenue to paying down the entire national debt, it would take 30 years to do it. That’s not insolvency….

The federal debt held by the public is now growing at about a 3 percent rate, while the economy is growing at about a 3.4 percent rate (these are both in nominal terms)…. the U.S. deficit is now perfectly sustainable. This represents a remarkable–possibly even excessive–display of fiscal responsibility by the U.S. government…. So the U.S. debt isn’t frighteningly large, nor is it growing in relation to the economy. In the future, it might do so, if health care prices accelerate again, or if the population ages more. But the U.S. can take steps to address those contingencies when they happen. For now, the U.S. is living in the greatest period of fiscal responsibility since the second Clinton administration.

Resist the urge to engage in debt hysterics, please.

April 23, 2016


Brad DeLong
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