If only Germany were as focused on economic growth as the US — and the US were as vigilant about debt as Germany.
To paraphrase that famous poem, I look on America’s debt burden and despair. Both Republicans and Democrats like to say they are serious about debt reduction, but then they just spend more or cut taxes. Meanwhile, “saving” entitlements has basically come to mean not touching them — making it likely that their projected shortfalls will eventually have to be paid with more new debt.
Then again, I sometimes tell myself, it could be worse: We could be Germany. Because as bad as it is to have too much debt, it’s even worse to have not enough growth.
In the era of very low interest rates, the relationship between growth and debt became the excuse to abandon fiscal responsibility. So long as a country’s growth rate was higher than its interest rates, the thinking went, its revenue would outpace its debt. Or, put another way: Debt is not a problem so long as the rate of growth, g, exceeds the rate of interest, r.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
Photo by Yuichiro Chino/Getty Images