The U.S. economy has lost at least 22 million jobs over the past month, with the unemployment rate headed to Great Depression-level heights. State and local governments desperately need infusions of funds from the federal government, and small businesses and the self-employed are weeks away from financial disaster.
And what does The Washington Post think is the most important story for the top of its Sunday edition? Why, fear mongering about debt, of course, because apparently it is always a good time to tell people that they need to suffer more than they are already suffering.
The supposedly liberal newspaper’s lead story on April 19 carried this headline: “Record government and corporate debt risks ‘tipping point’ after pandemic passes.” In due course, the article quotes an economist saying this: “We should be very worried. . . . We are definitely at a tipping point.”
That sounds bad. Yes, we should be very worried, but not about whether there is too much borrowing going on right now. In fact, we need to do more.
The Debt Scolds Always Have a Welcoming Audience in the Media
Economics is complicated, and macroeconomics—the study of the whole economy, including debt levels and unemployment—is often counterintuitive. Even people with a lot of training often become confused (or choose to be deliberately deceptive) about these issues, and untrained people are easy marks for homilies and morality tales masquerading as hardheaded wisdom.
We therefore find that even journalists who view themselves as fiercely unbiased all too easily buy into the simplistic notion that debt is always bad. “Neither a borrower nor a lender be!” “When the government borrows money, it unfairly saddles future generations with onerous obligations.” “When things are tough, everyone—government included—must tighten their belts.” This is all wrong, but reporters and editors (to say nothing of conservatives and “centrist” Democrats) cannot get enough of it.
Back in February of this year, before the seriousness of the coronavirus pandemic had become clear, a news article in The Post (not written by the same reporter as the April 19 piece) described the Trump administration’s then-new budget proposal by emphasizing again and again that the federal budget would not be balanced under the plan.
Indeed, the piece ended with this one-sentence paragraph: “The federal debt has already grown by about $3 trillion under Trump.” Are you scared yet? There was no effort to put that number in any context, or to note that it matters greatly how we spend the borrowed money. (That would have been useful, in fact, because Trump’s borrowing has almost all been squandered on tax cuts for the rich that did nothing to increase economic growth. In other words, I am not saying that all debt is good, only that debt is not always bad.)
There was only the unadorned reporting that “debt is up, and Trump said it would go down,” without ever questioning why we might care at all.
Similarly, in the “tipping point” piece this past Sunday, the panicked reporter offered this: “This year, the deficit will reach a postwar peak of 18.7 percent . . . . Only when the United States fought Nazi Germany was Washington bathed in more red ink.”
Bathed? Where is the reportorial neutrality that journalists claim to prize? And where is the acknowledgment that the “red ink” that we took on to fight Nazi Germany and Imperial Japan was money well spent? Maybe fighting a global pandemic is similarly wise, even if it is expensive to do so?
Indeed, even if this were all correct—that is, even if there were something worrisome about current and planned levels of debt — what is the implied suggestion? That we should be cutting spending and raising taxes now? That the right way to respond to the biggest calamity to face the world in several generations is to allow people to lose their homes and starve lest the government be seen to borrow money?
The Case for More—Much More—Federal Borrowing Is Crystal Clear
And to be very clear, no one is forcing anyone to lend the federal government money. As the economist Paul Krugman put it two months ago (again, before the current crisis had metastasized):
We live in a world awash in private savings looking for someplace to go, with investors willing to lend money to governments at incredibly low interest rates. It’s actually irresponsible not to put this money to work investing in the future, both by building physical infrastructure and through programs that help children develop their potential.
This was, mind you, when we were at essentially full employment—and certainly before private financial markets had become chaotic. Now, there is even more need for safe havens for savers to park their money. Adjusted for inflation, the U.S. government can borrow money from people at negative interest rates, which means that people are literally paying the government to use their money.
But is there no limit? The Post’s reporter certainly wants us to think so: “By the end of September, the public debt will be larger than the $21 trillion economy. . . . The recession’s impact will push the debt past the previous record of 106 percent of the economy, set in 1946.”
Is breaking the previous record bad? If so, why? (And again, what is the alternative?) There is not even an attempt to explain why this is a meaningful comparison. In a column on Dorf on Law last month, I noted that the United States could literally double its national debt and still be in the range that the Japanese debt-to-GDP ratio has hovered in for the last decade.
Oh, but The Post’s story has that covered—or at least the writer thinks so:
As the United States once again turns to debt to rescue the economy, it is locking in a future of lower growth. The national credit card is being used largely to stop today’s financial bleeding, rather than for investments — in the medical system, infrastructure and education—that would boost future growth.
Japan has been stuck in an endless loop of disappointing growth, low interest rates and mounting debt, and the United States could face a similar future.
Setting aside the snarky rhetoric (“national credit card”) and the fact that (per Krugman) we in fact could and should be using some of today’s borrowing for investments like infrastructure and education—which is all the more reason that Republicans should stop blocking aid to state governments—we most definitely need “to stop today’s financial bleeding.” Is the writer saying that we should not? Stopping bleeding is usually a pretty good idea, even if we have to pay for the bandages to do so.
More to the immediate point, however, the article provides no support for the naked assertion that we are “locking in a future of lower growth.” For that matter, the story also never explains what it means to be at the “tipping point”—a claim so important that it made it into the headline—or what the consequences might be of tipping over to the other side.
The only thing resembling an argument that debt will lock us into a low-growth future is the comparison to Japan and its supposedly “endless loop” of bad outcomes. That, however, ignores both the data and the logic of causality. Japan’s governmental debt increased significantly in the aftermath of the bursting of a massive financial bubble in the 1990s and subsequent follow-on crises, but it had stabilized over roughly the last decade.
Yes, Japan’s debt stabilized at a very high level (roughly double ours), but the point is that the country’s growth rate (per person) has not gone down further as a result of that. And that country’s relatively low long-term growth on a per-capita basis is due not to debt but to the aging of its population, with fewer workers supporting a large retired population. It does not help that Japan has highly restrictive immigration laws, which means that it is not allowing itself to bring in younger workers to support its retirees.
The Japanese story, then, is not “debt caused low growth” or even “low growth caused debt,” although the latter is at least partially true. The real story is that Japan’s government was faced with a crisis, and it stabilized its economy in the long term even while creating and servicing relatively high debt levels.
As I noted above, no one is being forced to lend money to anyone. Investors—even knowing that Japan has a high debt-to-GDP ratio—are eager to lend money to Tokyo at zero interest rates. This does not look like a debt crisis, unless one is convinced that the next debt crisis is always hiding around the next dark corner.
Notably, when the U.S. did emerge victorious from World War II, there was exactly one year in the decades through the late 1990s in which the absolute level of debt went down. (The dot-com bubble fed a few years of annual surpluses late in Bill Clinton’s presidency.) Even so, the country’s debt-to-GDP ratio declined for decades, not because we ran annual surpluses but because the economy grew faster than the additional borrowing.
And now we must ask what to do while we wait to get the pandemic under control. Ending lockdowns too soon risks even greater economic damage later (to say nothing of an unconscionable increase in deaths), so we need to borrow money now to prevent a downward spiral, creating a floor from which we can later rise, just as we did after 1945.
Contrarianism for Its Own Sake Is Grossly Irresponsible
What is particularly infuriating about The Post’s story is that the writer acknowledges that the case for more federal borrowing represents the overwhelming consensus among economists, including economists who in other circumstances would be far more skittish about debt than I am.
So what is the problem, given that almost all economists dismiss the “debt trap” and “tipping point” nonsense—including the nightmare scenario of hyperinflation and soaring interest rates—that the reporter fears? “Most economists expect inflation and interest rates to remain low for years. But they could be wrong.“ Yes, climate scientists could all be wrong about global warming, and the current consensus among economists of nearly all stripes could be a group delusion, too, one supposes.
Is there an argument to support this hypercautious approach? “Rising public debt is ‘the most important predictor’ of future crises, including defaults, sudden increases in borrowing costs or runaway inflation, according to a January study by four economists at the International Monetary Fund. ’Governments should be wary of high public debt even when borrowing costs seem low,’ the study concluded.”
But again, that simply means that crises around the world were preceded by increases in public debt, which is fully consistent with the possibility that the public debt increased in response to growing problems that reached crisis proportions later. Indeed, increases in public debt are likely to have mitigated the damage from such crises.
My larger point, however, is not to relitigate the case against debt panic. It is not even to say that newspapers—or anyone else—should simply accept the consensus view uncritically. Indeed, in normal times, I am among those who would be viewed as a contrarian, because I do not agree that government debt is bad, bad, bad.
Here, however, I find it shockingly irresponsible that one of the most important newspapers in the world decided to promote the crank-ish case against government debt in its top Sunday story. As an aside, it is notable that The New York Times also ran a piece on Sunday that provided significant oxygen to the anti-deficit crowd. I plan to discuss that article and some other aspects of these questions in a column on Dorf on Law this week, but although it has its flaws and biases, the article in The Times engaged in nothing like the recklessness of The Post’s piece. The Post did not, in any event, put a mildly interesting thought piece in the National section but instead published a blaring front-page warning that seems to say that we ought to engage in austerity right now.
Or, maybe that is not the point of the article, but again, what other point is it making? The reality is that we are in the midst of a once-in-a-long-lifetime crisis, and the government is doing far too little economically to fight it. We will soon need to do more, as the damage becomes impossible to ignore or explain away.
If we are at a tipping point, then, it is that we might soon allow the anti-debt pabulum that self-serious people hold so dear to cause us to do too little, which would tragically and needlessly tip us into a deeper abyss. We have the ability to do more—much more—and we should not listen to nonsense from those who misunderstand logic and the lessons of history.