A Forgotten Goal: A Balanced Budget

Ryan Heshmati

June 16, 2023

As much as President Reagan’s time in office turbocharged economic growth, it also marked the embarking of an accelerated growth of the national debt. At the outset of his presidency, the national debt was $738 billion (about $2.6 trillion in 2023 dollars). Today, the national debt is at over $31 trillion. Many conservative politicians have expressed great fear that the continuation of the deficit spending that adds to this debt will end in disaster for the American economy. Government mismanagement of money is not difficult to buy into; Milton Friedman’s sentiment, “if you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand,” remains ingrained in many Americans’ minds today. However, there are plenty of professionals who argue that fearing government debt and, thus, the potential for default is unnecessary.

For instance, Berkshire Hathaway’s Warren Buffet argues there is no reason to fear a default as, “If you print bonds in your own currency, what happens to the currency will be the question. But you don’t default.” Essentially, Buffett points out that if the debt a country owes is in a currency they can print themselves, perhaps the currency will be devalued, but there is no reason default should occur. Further, while $31+ trillion in government debt sounds terrible, and it certainly is no small number, when compared to the size of the economy (GDP), the U.S. government debt is not at unprecedented levels. World War II brought the U.S. debt-to-GDP ratio to almost 113%, according to the Congressional Budget Office, compared with 98% today in 2023. 

However, there is reason for concern; Federal Reserve Chair Jerome Powell concedes, “Debt is not at an unsustainable level, but the path is unsustainable.” The Congressional Budget Office’s numbers give credence to Powell’s warning, as the CBO projects the debt-to-GDP ratio will reach nearly 200% by 2053, far beyond World War II numbers. 

President Hoover, although ironically in office as the nation fell into the Great Depression, feared the economic fallout from excessive borrowing, asserting, “blessed are the young for they shall inherit the national debt.” Ultimately, the American national debt is at a critical junction. Will the debt-to-GDP ratio come back down and avoid breaking World War II levels, or will the CBO’s 2053 projections become a reality? The debt ceiling debacle signals Republican lawmakers appear quite set on preventing further excessive spending; however, only time will tell what happens to the national debt and the economy as a result.