Debt Fear-Mongering Has Moved from Mockable to Dangerous
The lead news story for most of the day at The New York Times on Wednesday was: "U.S. Debt Hits $40 Trillion as America’s Borrowing Binge Continues." Again, that was a news story, not an editorial. The US is on a borrowing binge, you see, and if we are to believe that The Times upholds its professed standards of journalistic objectivity, that is a factual and neutral statement.
I will not bury the lead/lede here. There is no reason to panic about the US debt situation. I will return to that conclusion in some detail below, but the key point up front is that there is nothing new in what The Times reported on Wednesday, other than the number $40 trillion itself, which Paul Krugman correctly described as "a number that is big and round, but otherwise has no special significance."
The last time The Times went back to the debt fear-mongering well (on May 9 of this year), I offered a prediction: "The next trillion in gross debt that the US will reach, by the way, is $39 trillion, and it will happen fairly soon. Look for another 'for the first time' Times headline."
I was referring there to two nearly identical headlines that The Times ran several months apart a few years ago: "U.S. National Debt Tops $31 Trillion for First Time," on October 24, 2022, and "U.S. National Debt Tops $33 Trillion for First Time," on September 18, 2023. Exactly one day after that latter piece ran, my Dorf on Law column was titled: ""Breaking News on the Federal Debt: 33 is a Bigger Number than Any Smaller Number!!" As I explained there, when we are describing a number that will always be rising (under good and bad circumstances alike), reaching a new high is an inevitability, not an event. "I'm forty years old for the first time!!" Stop the presses.
I should offer two semi-mea culpas here. First, I either underestimated or overestimated the debt panic-stokers at The Times by predicting that they would run another piece when gross federal debt reached $39 trillion. Unless I missed it, they kept their powder dry and waited to hype the bigger, rounder 4-0. My prediction was thus incorrect -- incorrect in a trivial sense, but still incorrect.
Second, The Times is not alone. The Guardian is not one of the news outlets that I would have expected to jump on an anti-government, contrived non-story. Even so, they dutifully put this article on top of their web page: "US gross national debt tops $40tn for first time." For the first time! Bingo!! Beyond the odd sense of validation that I felt upon reading that, however, it did make me think, "I kinda owe those annoying reporters and editors at The Times an apology. Turns out they're not the only simpletons."
After reflecting on it a bit further, however, I think that The Guardian's mindless myna-birding of the anti-debt mantra is in fact a further indictment of The Times. After all, most news sources at this point employ no staffers who have enough knowledge of economics to pretend to write something even as vacuous and ponderously self-serious as we see regularly in The Times. As in so much of modern news coverage, the agenda is set by The Times, and everyone else becomes mere stenographers.
Why am I so confident in saying this about The Guardian? One hint is that they compounded their error by adding a tag at the top of their headline with the words "Debt Ceiling." That is a major tell, because the debt ceiling has absolute nothing to do with this story. The Times story itself never mentioned the debt ceiling (or the equivalent term debt limit), which -- as anyone who has read pieces on this blog by Professor Dorf or me (or sometimes by the two of us writing together) even occasionally over the last fifteen years knows -- is a statute that is an entirely separate matter from measures of the federal debt or its economic consequences.
But if one knows nothing at all about fiscal policy and relies instead on "stuff I kinda remember seeing in the headlines," one stumbles blindly into completely avoidable errors like that one. Also amusingly, clicking on "Debt Ceiling" next to that headline takes us to a page with links to three Guardian articles. In addition to the "for the first time" article itself, one is about Michael Cohen's efforts to crawl back to Trump and ask for a pardon, and the other is about Japanese debt. Those editors are surely good at their jobs and know about a lot of things, but fiscal policy is clearly not one of them. Yet they happily veer out of their lane because The Times gives them permission to do so.
Even though there is nothing to see here, the rubbernecking by The Times and others becomes a problem in itself. I have written many times over the years about why US federal debt is not the big, scary thing that fiscal scolds try to make it out to be, but it is worth offering at least a brief review here. The usual move by the fear-mongers is to go heavy on frightening but empty descriptors like "grim" or "worrisome" (or "binge"), but they generally cannot deliver a decent story about why the debt is a problem that goes beyond saying something like this: "We're doomed by all this, but we've been lucky so far and have by God's grace been given one last opportunity to mend out irresponsible ways. Repent!"
Am I exaggerating? Hardly. I have written a few mixed-to-positive things about David French, a relatively recent addition to the editorial page at The Times, who fills a conservative slot at that paper but is not what I pointedly described as a "conservative diversity hire." Even so, French yesterday revealed himself to be deeply shallow when it comes to his understanding of economics. (One example: "Unless I harm someone else, it’s not the government’s job to determine whether I’m virtuous enough to enjoy liberty, including economic liberty." Wow, now there is a clear guide for setting the rules of the economic game. "Economic liberty" means nothing without rules, so the idea that there is a no-government zone of freedom is as naive as it is useless.)
And when it comes to federal debt, French is exactly the kind of blank slate that debt fear-mongers love. Again, French has no apparent reason to know anything about economics, but like nearly everyone in his world, he knows that being a Very Serious Person means being sagely worried about government borrowing. Two months ago, for example, he wrote this:
I’m reminded of a vivid analogy from a different context. In 2021 Noah Smith, a popular and thoughtful economist, wrote about the problem of debt and deficits. We know that at some point the debt gets too high, but we don’t know when that point is. He said, we were walking down "an infinite corridor with an invisible pit." We know the pit is there, we just don’t know where it is. If we keep walking, we fall in.
It is true that Smith is an economist, and he is hardly alone in offering that kind of apocalyptic warning about borrowing. Less dramatically, I have written at various times that there must be a tipping point ... somewhere ... beyond which debt would become a real problem. There are two reasons, however, not to go where French-channeling-Smith goes. (1) I cannot think of any other matter of policy on which the default idea is: "We don't know where the line is, so we'll assume it's an inch in front of us," for the very good reason that we should always ask what we lose by recoiling in abject terror. But more importantly, (2) The pit is not invisible.
On that later point, what The Times always does in its anti-debt pieces is to spook people with the idea that there will be a financial panic (sometime soon or soon-ish) caused by excessive debt. Their articles then turn to the usual suspects, who predictably say, "We've been warning you, but now it's $40 trillion!! The markets will punish us any day now." Some of the more behind-covering types might add something a bit more like Smith, qualifying their statements with "Well, we're not sure that it'll be any day now, but it might be!"
But if the big fear is that the bond vigilantes are ready to make us pay for our sins, we would in fact be able to see evidence that something is afoot. On their own, rising interest rates are not proof of a coming Armageddon, because those rates can and do rise and fall as a matter of course without getting out of hand. There has to be some evidence that the bond markets are doing something abnormal in response to federal borrowing, and although columns like those in The Times can cause blips in confidence, even the most economically conservative finance bro is not going to ignore market realities.
Anticipating the $40-trillion screaming headlines that were on tap, Paul Krugman's column two days ago was titled: "What Are Bond Markets Telling Us?" with the sub-headline: "Rates are up, but don't panic."
He wrote: "Yes, high interest rates are troubling and the next administration shouldn’t emulate the blithe unconcern of the current White House. But there’s no evidence of a looming debt crisis." Why not? Krugman gets into the technical weeds a bit, but here is his reasoning: "[I]f markets were really worried about U.S. solvency and the potential for the government to inflate the debt away, this should be reflected in measures that track inflation. But there has been, in fact, very little change in the 'breakeven' inflation rate, a measure of long-term inflation expectations." He added: "Another indicator is the price of credit default swaps — insurance against a possible US default. These also haven’t moved much."
Interested readers can also look at Krugman's piece from yesterday, in which he adds pointedly:
[A]nyone who asserts that markets are missing an impending debt crisis should be asked to explain how, exactly, such a crisis might play out. Don’t wave your hands at the debt crises that struck Greece and other southern European nations around 2010, because our situation is very different: Unlike Greece, which is a member of the euro area, the U.S. economy runs on dollars and U.S. government debt is denominated in dollars.
That matters because it’s very hard to construct a scenario for a Greek-style debt crisis in a nation that borrows in its own currency. As far as I can tell — and I’ve studied the issue at length — there are no historical examples in which this happened. The detailed, wonkish logic of why we are not and have never been Greece is explained in a paper I presented at the IMF’s annual research conference some years ago.
"No historical examples." Although understated, Krugman's fundamental point there is crucial. We should not allow people to talk about "an invisible pit" if they cannot describe (to carry the metaphor forward a bit) how deep the pit might be, how slippery the pit's sides are supposed to be (which is relevant both to falling in and climbing out), whether there are monsters or pillows at the bottom, and other key matters. In his writing over the years, Kurgman has mocked people who shout: "We'll be just like Greece, Greece I tell you!" And for good reason.
On a final point, one might reasonably ask why the headline of this column is: "Debt Fear-Mongering Has Moved from Mockable to Dangerous." After all, I have engaged in a fair amount of mockery here, and I am obviously having fun with it. Even so, it is important to emphasize the political consequences of this insanity.
The sub-headline on The Times's piece reads: "President Trump’s promises to restore fiscal order and reduce the amount of America’s debt burden have been undercut by spending on the Iran war, tax cuts and tariff refunds." So the implication here is that people who do not like Donald Trump or his presidency should agree with the debt scare-mongers. His policies, after all, are adding to the debt, and the debt is falling-into-an-invisible-pit bad, right?
But this simply highlights the central point that I make whenever I write about the debt (which is often). This has gone from mockable to dangerous because it is even more obvious than it ever has been before that this will harm policy in the future. Here, I will quote from my anti-scare-monger Dorf on Law column in May:To be very clear, I am not saying that debt is always good. As always, I am saying that it is not per se bad. One might imagine that I would have written that down somewhere. Oh right: Out of literally dozens of places where I have made that argument, two good recent examples are here and here.
In those articles and in so, so many others, I make the point that the way to push back against orthodox debt fear-mongering is not to feed it when it is politically convenient to do so. [T]he reason, as always, to oppose Trump/Republican policies is because they are bad on their own merits. They waste economic resources and get nothing for it. [I]t still would be terrible policy -- as a matter of economics, on top of everything else -- to increase Pentagon spending by 50 percent (to build "Trump battleships," for chrissakes), to give huge tax cuts to billionaires, or to waste money in every other way that Trump wastes money.
Those who want to criticize Trump and the Republicans have more than enough material to work with. There is no reason for anyone, and certainly not The New York Times, to make a big deal about an utterly meaningless statistical artifact.
To close on a possibly entertaining (but mordant) note, shortly after I saw Wednesday's Times headline, Professor Dorf forwarded the link to me, just in case I had missed it. I replied: "Eccchhhh. I was almost hoping that you hadn't seen that, but then I realized that I would've felt a grim duty to write about it anyway. The power of Christ compels me, or something like that," adding moments later, "[T]his is the path in life that I’ve set for myself."
The point is that there is nothing enjoyable about seeing the corporate media team up on a regular basis with anti-government conservatives to undermine American economic policy. But they will not stop, so giving up is not an option.
- Neil H. Buchanan