Image courtesy of The Wall Street Journal
By Eva Lynch
The new fiscal year begins on October 1 and is expected to be one of the poorest since World War II. The national debt is projected to exceed the country’s gross domestic product due to higher spending related to the coronavirus pandemic and subsequent economic downturn, according to the Congressional Budget Office.
The national debt has not exceeded the size of the economy since 1956 and will put the United States in the company of countries like Greece, Japan, and Italy.
Though debt hawks and economists have warned of this approaching threshold for years, other social and foreign issues have been prioritized because no one expected the threshold to arrive so quickly. However, the coronavirus pandemic and ensuing economic catastrophe severely amplified the already underlying economic issues of an inflated military budget and an ever-increasing deficit. Additionally, it forced massive government borrowing and spending for bandaids like stimulus payments, increased unemployment benefits, and small business loans. The deficits over the last 50 years have averaged 3% of the GDP, but the projected deficit for fiscal year 2020 is almost 18% of the GDP, according to a study by the Brookings Institute and reports from the Congressional Budget Office.
So how worried should you be about the $26 trillion debt?
Top economists say not too much. Yes, the national debt was already increasing before the onset of the pandemic. However, the response to the pandemic that began the rapid inflation of debt helped to ease the economic pain of a nationwide shutdown and put money back into Americans’ hands, which they then use to stimulate the struggling economy through spending. Essentially, when more close-up economic issues like unemployment are ballooning uncontrollably, the national debt is not the highest on the priority list. Further, Nobel laureate Esther Duflo explained to CNBC that the United States’ economic status in the world is strong, so the debt is unlikely to ever have to be repaid, thus strengthening the notion that federal government spending should be focused on easing the economy for short-term benefits rather than preoccupied with lessening the national debt.
One of President Donald Trump’s promises during his 2016 campaign was to eliminate the national debt in eight years. However, the measures that had to be taken in response to the economic crisis ignited by the unforeseen coronavirus pandemic accelerated Trump’s spending, in addition to the increase in debt he was already contributing. The proximity of the election means everything becomes a campaign issue, so it can be expected that the Biden-Harris team will capitalize on this failed promise throughout the upcoming debates.
Beyond the rhetorical trap that is inevitably being laid for Trump in the debates, the issue of the national debt and the threshold it is certain to cross may not be of immediate concern. This is especially true when the spending that has led to the rapid increase in debt was critical for stimulating the economy and easing Americans’ minds amid the pandemic-instigated crisis.