The Graph You Really Need When Watching the Republican (and Democratic) Conventions

August 29, 2012

Ezra Klein gives us a graph from the Center on Budget and Policy Priorities that shows the ratio of debt to GDP from 2001 to 2019. The graph attributes the rise in the debt to various causes. The Bush tax cuts and the wars in Iraq and Afghanistan are shown to be major culprits.

There actually is a much better graph that people can use. This is the graph showing interest on the debt as a share of GDP.

interest-as-GDP-08-2012

Source: Congressional Budget Office.

Note that this one looks considerably less scary. We don’t get back to the same devastating interest burdens we faced in the early 90s until 2019. Yes folks, that was snark. Unless I’ve gone senile the interest burden we faced in the early 90s did not prevent us from having a decade of solid growth and low unemployment at the end of the period.

Am I pulling a fast one here by switching from debt to interest payments? Not at all. Suppose we issue $4 trillion in 30-year bonds in 2012 at 2.75 percent interest (roughly the going yield). Suppose the economy recovers, as CBO predicts, and the interest rate is up around 6.0 percent in 4-5 years. The federal government would be able to buy back the $4 trillion in bonds it had issued for roughly $2 trillion, immediately eliminating $2 trillion of its debt. This will make those who fixate on the debt hysterically happy, but will not affect the government’s finances in the least. It will still face the same interest obligation.

The point here is that the fixation on the debt by both parties has paralyzed economic policy so that tens of millions of people are now being needlessly forced to suffer the effects of unemployment. We need graphs that focus on the economy, not silliness that distracts from real issues in order to assign partisan blame. (Yes, the Bush tax cuts were stupid and the wars should not have been fought, but they did not get us in this mess.)

 

Comments

Support Cepr

APOYAR A CEPR

If you value CEPR's work, support us by making a financial contribution.

Si valora el trabajo de CEPR, apóyenos haciendo una contribución financiera.

Donate Apóyanos

Keep up with our latest news