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Home Publications Blogs Beat the Press David Brooks Is Upset that the Interest Burden of the Debt Is Near a Post-War Low

David Brooks Is Upset that the Interest Burden of the Debt Is Near a Post-War Low

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Tuesday, 30 October 2012 04:29

When NYT columnists make absurd assertions they deserve ridicule. In his NYT column today, David Brooks make the absurd assertion that, "the mounting debt is ruinous." Right, and we know this because the interest rate on 10-year Treasury bonds is less than 1.8 percent? (That compares to rates of more than 5.0 percent when we had budget surpluses in the late 1990s.) Do we know that the mounting debt is "ruinous" because the ratio of interest on the debt to GDP is near a post-war low?

interest-per-gdp-10-2012

Source: Congressional Budget Office.

The real story is that the debt is not ruinous except in David Brooks' head. He has no basis for this whatsoever. He is using fears of the debt to try to scare people to support his agenda in the way that others have appealed to racial or ethnic fears.

We have a large deficit because the economy plunged when the housing bubble collapsed. That is the story. The deficits are supporting the economy because the this collapse led to a massive loss of private sector demand. Without the deficit we would simply have lower GDP and higher unemployment, as all the "fiscal cliff" whiners are implicitly acknowledging. This fact is easily demonstrated by looking at the Congressional Budget Office projections from January of 2008 before it recognized the impact of the bubble's collapse.

 

deficits-per-GDP-10-2012

Source: Congressional Budget Office.

There were no big new permanent government spending programs or tax cuts put in place in 2008 or 2009, the deficit exploded because of the economic collapse, end of story. Anyone who says otherwise is trying to mislead people deserves nothing but ridicule and derision.

Comments (7)Add Comment
Interest on the debt as a percent of GDP?
written by Bill H, October 30, 2012 10:11
Economists are very fond of citing debt, and now interest payment on the debt, as a percentage of the GDP, byt why? When you go to apply for a loan, does the lender compare your personal debt to the amount of revenue generated by your employer? Of course not; that is a meaningless number. They compare your debt to the amount of your personal income.

National debt as a percent of annual government revenue would be a meaningful number, but it would also be a number big enough to scare the heck out of people, which is why economists don't use it.

You economists claim that the debt reflects what the nation is doing and therefor should be compared to the nation's "income," but that is sophistry. The debt reflects what the government is doing and should be related to the government's income.
...
written by ZachPruckowski, October 30, 2012 11:00
Forgive me if this is obvious, but what's with the discontinuity on the first graph?

Bill H - GDP is the metric because the government has some power to set revenue/GDP whereas most employees like myself can't effectively set salary/revenues. Now obviously there are negative repercussions to abusing that power, but it's still a real thing. Also, consider the implications of your proposal: under your system, adding a deficit-neutral Northern European tax/welfare system to the US would improve its debt standing.
...
written by Calgacus, October 30, 2012 9:32
Bill H: National debt/gdp doesn't have much meaning, but it makes much much more sense than debt/revenue. The national debt is really the basic money supply of the whole economy. "Government debt" is really just another word for "money" ("currency"). The taxes received by of the government are NOT income to the government. They're just money taken out of the economy by the government, in order to give the money/debt/bonds it freely creates value. It plays lots of idiotic shell games to disguise what is going on. But during the Keynesian era, everybody understood what was going on. During the Civil War, Secretary of Treasury Salmon Chase, for instance, had a good understanding.

The debt/deficit IS what the economy is doing, not what the government is doing. Government expenditure and taxation depends on what the private sector is doing. As Dean explains, the current big deficits are solely because of the private sector collapse. Nothing to do with any current government decision - but Good Things caused by rational policies put in place by far smarter and saner people now dead, above all FDR. Our debt and deficits are too small, not too big. Making them smaller and wrecking the economy thereby ruins the future of our children, not making them bigger.

In fact, the worst economics used in the history of the USA is the fraudulent fake-mathematical quackonomics of the last 40 years. Keynesian economics unfortunately brought the virus of neoclassical "economics" with it to the USA, and the virus displaced both Keynesian & its homegrown US twin, Institutional economics. The result has been the worst decades for economic progress in the history of the USA & even the colonies - the last 30 years.
What about inflation?
written by Ralph Musgrave, October 31, 2012 4:33

Brooks’s argument is even more absurd than Dean paints it because Brooks does not take inflation into account. That is, the REAL or inflation adjusted rate of interest on Treasuries is not around 2%: it’s more like 0% because inflation is running at about 2%.
Brooks is a Partisan Republican
written by Aaron, October 31, 2012 7:32
I know people sometimes get confused about this, because he feigns moderation and puts his own spin on the party's talking points, but Brooks is a Republican partisan. If you start from the position that his implied conclusion is "Vote Romney!" and that his devotion to fact is every bit as real as the Applebee's Salad Bar, you'll better understand his 'logic'.
Discontinuity Explained
written by Dean, October 31, 2012 9:32
Zach,

the answer is laziness. For some reason CBO had a space in its data which I did not remove when I made the chart. There's nothing more to it than that.
is this really the point
written by ezra abrams, October 31, 2012 12:39
Dear Dr Baker:
If I may - as someone who finds your comments on the whole very valuable - I think you are missing the lay (baker, me) persons view
It is clear that the amount of money the fed gov't has borrowed has gone up a lot
It is clear that our pop is aging and medical costs are going up
It is clear that soc sec, which pays current retirees from current workers, will have a higher Ret/Worker ratio in the future.

I think, to laypeople like myself, this sounds ominous, and i don't really hear a clear ,convincing solution; certainly when i read econ webblogs, i get MEGO syndrom (if not BOMFOG) whenever i encounter words like "exogenous".

For instance, I have never read a clear explanation of what will happen when the soc sec trust fund starts redeeming ious with the treasury; it certainly seems to a naive person like myself bad; but I don't understand it.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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