Fearmongering about the national debt is so common in the US that we often barely even notice when it is happening. Politicians will toss in the occasional “and my opponent increased the federal debt” or refer to “ruinous deficits” almost instinctively, and even supposedly unbiased news reporters simply presume without reflection that deficits and debt are bad—bad for the government, bad for the economy, bad for our mortal souls.
Rarely, however, is this naive debt panic presented in a way that is so extreme as to cross the line into being funny. As I wrote in Part One of this two-part column yesterday, however, two reporters from no less a respected source than The New York Times managed to write a column so lacking in substance that I was helpless to stop myself from responding with an almost uninterrupted stream of irony, ridicule, sarcasm, and snark.
Indeed, I have been writing about federal deficit and debt issues for my entire academic career, but I had until yesterday never coined the term “debt porn.” But that is what Alan Rappeport and Jim Tankersley (whom I will continue to refer to as RT) produced in “U.S. National Debt Tops $31 Trillion for First Time,” an October 4 article in which they tried to make a big deal out of a pile of nothing, using as their news hook the fact that a completely meaningless measure of total federal borrowing had risen above an arbitrary level that no one has ever said is important.
Having had fun with the absurdity of RT’s article, I ended Part One by noting that RT had in fact made at least one partial attempt at a substantive argument—an argument that, if true, would at least have offered us some reason to stop and ask whether the anti-debt policy position that RT promoted so aggressively might be worth considering.
It is important, however, not to skip past the bigger picture here. In a piece that was not in any way labeled as commentary or opinion, written in the form of a standard news article, two reporters made a sustained argument that the US federal debt is too high. They presented their conclusion as a fact, not an opinion; they even went to some lengths to give the Biden administration’s “side of the story” before rejecting it based on biased sourcing and unfounded empirical assumptions.
Their article was, in short, a political exercise, with reporters from a reputedly liberal news source—probably the most important single news organization in the world—taking the side of the Republicans who are attacking the Democrats’ economic policy decisions. That is shocking, or it should be. That they did not even acknowledge what they did is all the more reason to worry.
In any case, we should take the time here to deal with RT’s sole attempt at substance. As I indicated in Part One, their argument fails. It at least is an argument, however, which is more than can be said for the rest of the article. Unfortunately, even drilling down to find their argument takes some effort.
A Distraction: Interest Rates are Rising, so … Something Bad
In an article long on insinuation and short on substance, RT pepper their piece from the very beginning with the suggestion that the problem with the federal debt is that interest rates have recently been rising. This itself is somewhat contradictory, because if the problem is that the debt has surpassed their puzzling $31 billion threshold (puzzling because, again, that number’s importance exists entirely in RT’s imagination), then the problem is not interest rates but debt levels.
Even so, let us take seriously the idea that the debt level, no matter what it is, is now more expensive to finance because higher interest rates mean that the government will have to pay its lenders somewhat more in interest payments than before.
But “more expensive” does not necessarily mean “bad,” and it certainly is a long way from “grim,” as RT put it. I might not like it if my adjustable-rate mortgage adjusts upward, resulting in larger monthly payments to my lender, but that disappointing situation to me does not spell the end of the world. And from the perspective of the overall economy, someone else’s income will go up because of the extra money that I am paying. That is hard comfort to me, perhaps, but what matters here is whether this is bad for the country, not whether Treasury has to pay more to the government’s creditors.
To be clear, then, it is not enough to say that interest rates have risen and therefore that servicing the federal debt will become more expensive. That is a simple fact about basic finance—higher interest rates make borrowing more expensive for the borrower, and more lucrative for the lender—but it is not an argument, nor is it a reason to say that things are now horrible. And because it is not an argument at all, this cannot be the attempt at substance that (as I acknowledged) RT offered. We must dig deeper.
As we wade through RT’s article and try to find their actual A-is-bad-because-B argument (the part that is not mere indulgence in debt panic), however, it becomes clear that they spend an awful lot of time merely repeating the fact that interest rates have gone up—which again, is a premise and nothing more. It starts in the first sentence of the piece: “America’s gross national debt exceeded $31 trillion for the first time on Tuesday, a grim financial milestone that arrived just as the nation’s long-term fiscal picture has darkened amid rising interest rates.”
In addition, the piece ends with an extended quote from an economist who works at a decidedly (and openly) right-wing thinktank. In Part One, I mentioned that RT rely in key places on “deficit scolds,” which are lobbying organizations that are at least nominally nonideological, even as they obsess about federal borrowing. By the end of their article, however, RT simply hand over the microphone to a person whose job is to advance conservative political economic propaganda.
RT paraphrase that source as saying that “the United States was unwise to make long-term debt commitments based on short-term, adjustable interest rates. Adding new debt … as interest rates rise would be pouring fuel on a fiscal fire.” But that proves too much, because debt commitment by governments is inherently very long-term, and even the longest-term loans (30-year Treasury Bonds) are adjustable when they need to be rolled over. If it is “unwise” to borrow knowing that the interest rate might rise sooner than the debt will be paid off, then it would be unwise to borrow, full stop. That idea—that debt is inherently bad—is an opinion that a person could choose to hold, but we should be clear that it is an argument against debt under any circumstance, not an argument against debt when interest rates are rising.
In addition, the argument is at best disingenuous, because it would be just as easy for this person to say that adding new debt is a problem even if interest rates were not rising. After all, any new debt brings with it the requirement to pay interest, whether or not rates have gone up. By this logic, then, adding any amount of new debt to any amount of existing debt is bad. Again: full stop.
RT then end the piece with a direct quote from their openly biased source: “Basically, Washington has engaged in a long-term debt spree and been fortunate to be bailed out by low interest rates up to this point. But the Treasury never locked in those low rates long term, and now rising rates may collide with that escalating debt with horribly expensive results.” (“Spree”? Really?) There is no evidence offered that Treasury issued too few 30-year bonds, only the bare assertion that it “never locked in” long-term rates. Should it have issued million-year bonds?
Other than saying that this will have “horribly expensive results,” however, this still leaves us with nothing. RT end their piece by emphasizing yet again that higher interest rates lead to higher interest costs, but where is the proof that this will be horrible, or even a bit uncomfortable?
The Closest Thing to a Substantive Argument: The Return of the Confidence Fairy
The one source in RT’s piece who is neither a conservative ideologue or a deficit scold (which is merely a different kind of conservative ideologue) is Jason Furman, an economist who served in the Obama administration. To be clear, Furman has tended to be a fiscal hawk, but he is a reasonable person and—especially in RT’s article—serves as a needed voice of reason. RT quote him saying something that, at long last, begins to sound like a real argument: “The deficit path is almost certainly too high [given the rise in rates in recent weeks]. We were sort of at the edge of ‘OK’ before, and we are past ‘OK’ now.”
As an initial matter, note that Furman is not—unlike the other sources quoted by RT—saying that debt is always and everywhere the bane of our existence. He allows that things were “OK,” which is saying a lot. Why, however, are things bad now? Here, RT offer their one and only argument, relying on the Congressional Budget Office (which is known for being highly pessimistic in its assessments of federal debt matters). RT write:
The C.B.O. warned about America’s mounting debt load in a report earlier this year, saying that investors could lose confidence in the government’s ability to repay what it owes. Those worries, the budget office said, could cause “interest rates to increase abruptly and inflation to spiral upward.”
Those of us who follow these debates could be heard gnashing our teeth, sobbing plaintively: “Oh my God, this is at bottom just another appeal to the Confidence Fairy?! You have to be kidding.” The Confidence Fairy, for those who are blissfully unaware, is Paul Krugman’s favorite term to describe the argument that the financial markets stand ready to punish any government that shakes financiers’ collective confidence in that government. If the financial markets are not happy, the argument goes, they can tank the economy—causing “interest rates to increase abruptly and inflation to spiral upward.” (I explain all of this in a Verdict column from ten years ago—the Confidence Fairy’s heyday.)
The problem is that the Confidence Fairy—less fancifully known as bond vigilantes—is often invoked but rarely seen. We spent the entire Obama era being told that Democrats were undermining confidence in the financial markets and that interest rates would inevitably rise while inflation ran riot, but it never happened.
Just because something has not happened yet, however, does not mean that it could never happen. Surely, if federal debt were to triple overnight, or if some other huge event shook up the world, financial markets could crash. But as Furman noted, the reason he thinks that we want from “OK” to “no longer OK” is because interest rates are higher now than they were earlier this year. What matters, however, is whether those rates will stay at their current levels, and Furman is intellectually honest in admitting: “I don’t know where interest rates are going, but whatever you thought a year ago, you definitely have to revise that.”
Possibly, but even if so, in which direction should we revise? Do we have reason to think that the recent increases in interest rates are here to stay? As it happens, Krugman addressed this very question in one of his recent newsletters (behind a paywall, unfortunately). His conclusion is that there is nothing about the recent increases in interest rates that should cause us to believe that they are permanent.
His reason is as simple as it is surprising. For the last several decades, there has been a glut of savings around the world. That means that there are more people who want to lend money than there are investors who want to borrow it and pay interest on it, which is why interest rates have been as low as zero percent in recent years. And that fact—that there is a global glut of savings—is just as true today as it was before the pandemic, possibly more so.
So yes, central banks (like our Federal Reserve) can adjust some interest rates in the short term to try to cool down the economy to fight inflation, but in the long run, if there are too few borrowers chasing too many saved dollars, interest rates are not going to continue to be higher than they were before.
Is this a prediction that could be wrong? Yes, but so is the implicit prediction on which RT’s sources rely, which is that for some reason the underlying fundamentals of interest rates have changed permanently, simply because the Fed has undertaken what it understands to be a temporary campaign to get rid of the excess inflation that remains in the economy.
At bottom, then, the RT article is nothing more than deficit fearmongering top to bottom, with one poorly sketched-out argument at its core: interest rates have gone up, so they are going to stay up, and indeed they are going to stay up so high and for so long that the financial markets will freak out and create hyperinflation while the bond market melts down.
To call that argument “highly contestable” is an understatement. The best evidence we have is that none of it will happen, and notably, RT do not even seem to be aware that their only substantive claim relies on so many weak premises.
As I noted at the end of Part One, this is all good news. The New York Times decided to try to scare us—again—into thinking that the national debt is going to destroy us all. Other than humorously bad rhetoric and partisan non-arguments, along with one empirical assertion that cannot withstand scrutiny, however, they offer nothing to back up that nightmare scenario. When it comes to this subject (but unfortunately few others), we can sleep soundly at night.