February 23, 2011
The Washington Post (a.ka. “Fox on 15th Street”) long ago gave up any pretense of objectivity in its budget coverage. Today it ran a news article which can best be described as a tirade against budget deficits and debt, since it contained no real news. The article relies exclusively on deficit hawks as sources. It presents no one who could put current deficits/debt in context.
Had it gotten a broader range of opinions readers would have known that the claim that growth slows when a country’s debt to GDP crosses 90 percent is dubious, since most of the countries in this group are like Japan, in the sense that their debt to GDP ratio rose because they were growing slowly. Japan’s government actually had a very small debt before its stock and housing bubbles burst in 1990.
A wider range of sources would have pointed out that it is the combination of public and private sector debt together that pose a burden on an economy. Right now the U.S. is seeing its private sector debt diminish. They might have also pointed out that the Federal Reserve Board can and does hold large amounts of government debt, so that it poses no interest burden for taxpayers.
And, they would have also pointed out that productivity growth ultimately determines a country’s standard of living in the long-run. Current and projected future levels of productivity are far higher than the deficit hawks ever dreamed possible in the mid-90s, so what are they whining about?
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