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Against Debt Hysteria

When it comes to paying for the future, Democrats needn't accept the premises offered by Beltway scribblers and cable news pundits.

Jim Watson/AFP/Getty

Last week, Elizabeth Warren released her plan for fully financing Medicare for All, which her campaign estimates could cost the government $20.5 trillion over ten years. Notably, Warren claims that the program could be paid for in its entirety without raising taxes on the middle class—a bold rejoinder to Joe Biden, Pete Buttigieg and other critics who have called Medicare for All politically and fiscally unsound. Several of the plan’s pay-fors are straightforward taxes, including a steeper wealth tax than the campaign initially proposed, a financial transactions tax, and a new minimum tax on foreign corporate earnings. Warren would also have employers pay the government 98 percent of their current expenditures on health insurance. But Warren also finds money in more interesting places—not only in the savings single-payer advocates have long argued could be squeezed from cutting prescription drug and administrative costs, but also in ideas like revamping IRS enforcement and passing comprehensive immigration reform, which the campaign says could yield $400 billion all on its own.

It all adds up on paper, but there’s no telling whether it will in the real world. What if the IRS only manages to yield $1 trillion in extra tax revenue rather than the $2.3 trillion the campaign hopes for? What if a financial transaction tax isn’t passed or winds up weaker than Warren anticipates? What if a wealth tax not only passes, but is so successful in reducing wealth inequality that the base of ultra-billionaires financing a portion of the program gradually shrinks? What if Medicare for All simply costs more than the campaign projects?

For all the gaps in the funding scheme one could envision, the release of Warren’s plan will probably help build Medicare for All’s fiscal credibility, as Slate’s Jordan Weissman recently argued. “[I]f it strains credulity at points, Warren’s cost estimate is probably transparent and realistic enough to deflect unpleasant questions from debate moderators and journalists,” he wrote, “which, ultimately, is the main point of this exercise.”

It’s an exercise that’s been repeated by multiple candidates advancing the increasingly ambitious policy ideas that have come to define the Democratic primary. Whether the policy in question is expanding health insurance, addressing climate change, making college free, or making housing more affordable, no plan is complete without a thorough rundown of all the taxes, cuts, and assumptions that will be strung together, Rube Goldberg-like, to precisely cover it all. The revolution, we’re assured, will be budget neutral.

These calculations exist in a vacuum. It’s rarer for campaigns to explain how much all of their proposals would cost put together or to convey just how perfectly the political stars would have to align for the math to work just right. Even if those stars do align, the next Democratic administration will inherit a large national debt that will continue rising even without new expenditures on ambitious new programs. They might also inherit a recession—or at least an economy that’s due to experience one soon—which would both increase the budget deficit and prompt calls for an expensive stimulus to speed along a recovery.

Progressives, when asked about our fiscal situation, have correctly taken to pointing out the Republican Party’s fiscal hypocrisy and the press’ ambivalence about certain kinds of spending. “All of us can be a little forgetful sometimes,” Sanders tweeted last week. “My Republican friends launched trillion-dollar wars and passed huge tax cuts for the rich. Then they ask why the deficit went up.” But responses like this only sidestep the substance of the concern that our deficits and debt have grown unsustainably large—an idea debate moderators, centrist think tanks, and others will promote no matter how many times Democrats appeal to Republican irresponsibility. If the campaign so far is any indication, progressive candidates will lend credence to that idea by cobbling together elaborate funding proposals.

They shouldn’t. Instead, progressive candidates should challenge the premises of the questions they get about affordability. The soundest response to queries about how we might fully pay for Medicare for All or climate policy is a simple one: We will not.


The average voter hasn’t a clue how public debt is financed and the television journalists who ask pointed questions on the debate stage seem similarly adrift. In fairness, the extent to which advanced economies like ours can sustain large debts is a highly complicated matter that economists have long debated. But there are a few facts about our fiscal position that progressives should know and explain to the public. The current American public debt-to-GDP ratio—that is, how much the government owes to others represented as a proportion of the size of our economy—is projected to hit 78 percent by the end of the year. According to the Congressional Budget Office, the United States is on track to surpass the public debt record set at the end of World War II—a debt to GDP ratio of 106 percent—around the 2030s. That makes our current debt seem high, but it’s not without precedent among our peer economies. Japan’s public debt, for instance, reached 236 percent of GDP in 2017. Yet the Japanese economy has been humming along for most of the past decade.

Much of the concern about the sustainability of high debt is animated by two dynamics. First, at higher levels of debt, borrowing money can become more expensive for governments—creditors can demand higher interest rates to cover the increased risk of their lending. Second, government overspending can put too much money into the economy, bringing about inflation. On both fronts, the United States is in good shape. Interest rates are currently historically low, as is our rate of inflation. It should be said, too, that when inflation does rise to unhealthy levels, policy measures can deflate the economy. Doing so could be economically costly, but would be much less damaging than, say, not taking on the existentially necessary project of addressing and adapting to climate change.

In recent years, the proponents of Modern Monetary Theory, which holds that countries like the United States that control their own currency can’t default on their debt, have been the loudest advocates for dramatically increasing debt spending. But even mainstream liberal voices in the economics world who have been critical of MMT, like The New York Times’ Paul Krugman, have spent years fighting the idea that our debt is a significant problem to be worked around. Earlier this year, former International Monetary Fund chief economist and MIT professor Olivier Blanchard gave a widely-discussed lecture at the American Economic Association arguing that, under certain conditions, high levels of public debt may be more sustainable than previously thought, as Krugman explained in a subsequent column:

Blanchard starts with the commonplace observation that interest rates on government debt are quite low, which in itself means that worries about debt are overblown. But he makes a more specific point: the average interest rate on debt is less than the economy’s growth rate (“r<g”). Moreover, this isn’t a temporary aberration: interest rates less than growth are actually the norm, broken only for a relatively short stretch in the 1980s.

[…]What matters for government solvency isn’t the absolute level of debt but its level relative to the tax base, which in turn basically corresponds to the size of the economy. And the dollar value of G.D.P. normally grows over time, due to both growth and inflation. Other things equal, this gradually melts the snowball: even if debt is rising in dollar terms, it will shrink as a percentage of G.D.P. if deficits aren’t too large. The classic example is what happened to U.S. debt from World War II. When and how did we pay it off? The answer is that we never did. Yet [...] despite rising dollar debt, by 1970 growth and inflation had reduced the debt to an easily handled share of G.D.P.

None of this amounts to an argument that the United States faces no fiscal constraints. Even proponents of MMT argue that the government cannot debt spend without worrying about eventual inflation. But there is a large body of evidence suggesting our government has room to borrow and spend more—without having to lean entirely on the kind of largely speculative or even imaginary pay-fors progressive campaigns regularly devise.

Candidates who don’t propose ways to comprehensively pay for their ideas shouldn’t be considered fiscally unserious and progressive candidates shouldn’t indulge the idea that they are. Instead, they should use conversations about affordability as opportunities to better inform the public about the way government debt works. Over time, this could force the press to spend more time assessing the merits of progressive proposals and upend conventional wisdom about fiscal seriousness too. After all, the tax increases and cuts to major programs that would be necessary to make a meaningful dent in the national debt are more politically implausible than most progressive agenda items, and responsibly addressing many of the challenges we face as a country and planet—including climate mitigation and adaptation—will incur costs we might not be able to cover in the near term. Let dreamers and idealists pine for balanced budgets. It’s up to us realists to get things done.