What Debt Crisis? Tiime to Stop Worrying and Spend What's Needed to Fix the Economy

The U.S. federal debt--the amount Washington owes the public, the Federal Reserve and other governments--equaled 98 percent of GDP at the end of the last fiscal year, which is almost as much as the historic high of 106 percent reached during the total mobilization of World War II. If the Biden administration gets anywhere near as much as it is asking for pandemic relief, the debt-to-GDP ratio is likely to set an historic record in the 2021 fiscal year. And with the population certain to age rapidly for decades to come, rising spending on Medicare and Social Security will almost guarantee big deficits for the indefinite future unless taxes are raised. Yet there is certainly no reason to panic--and maybe no reason to worry. For even as the debt has been increasing, the cost of financing the debt has been in a free fall as interest rates on government securities near record lows. Indeed, the declining cost of servicing debt has led many economists to conclude that, at least for now, the debt is not a problem--or at least not a priority. There are a host of more important policy priorities to tend to if we want to strengthen the economy and give future generations a chance to shine.