Why are interest rates so low? That’s a longish story, probably mainly involving demography and technology. Basically, the private sector doesn’t seem to see many opportunities for productive investment, and savers who have no place else to go are willing to buy government debt even though it doesn’t pay much interest. The important point for current discussion is that government borrowing costs are now very low and likely to stay low for a long time.
As a result, the burden of debt — which was always exaggerated and was misunderstood in any case — isn’t what it used to be. One measure of how much things have changed: On the eve of the pandemic, federal debt as a percentage of gross domestic product was twice its level in 2000. But federal interest payments as a percentage of G.D.P. were actually down.
The bottom line is that government debt just isn’t a major problem these days. Which brings us back to the politics.
Joe Biden has promised to “build back better,” a slogan that translates into proposals to spend big sums on infrastructure, climate policy, education and more, largely with borrowed money. And that’s very much the right thing to do; business may see only limited returns to investment, but we’re in desperate need of more public investment, broadly defined (for example, including spending on children).
Yet Republicans will surely oppose these proposals. Indeed, if they hold the Senate, they may well do what they did to Barack Obama, and try to force Biden to cut spending. And they’ll justify their intransigence by railing against the evils of debt.
So how should we push back against this predictable attempt to stonewall the Biden agenda? It will be tempting to emphasize Republican hypocrisy. But the biggest problem with the debt-scare politics we all know is coming isn’t the hypocrisy or the bad faith; it’s the fact that it’s wrong on the merits.
For given what we’ve learned and where we are, it’s clear that the U.S. government should be investing heavily in the nation’s future, and that it’s OK, indeed desirable, to borrow the money we need to make those investments. That is, to act responsibly, we must stop worrying and learn to love debt.
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