Apr 30, 2019

Does Federal Debt Hurt the Economy More Than We Thought?

Thomas Grennes Emeritus Professor of Economics, North Carolina State University, Chad Reese Former Managing Editor, Kate Davidson

While it sometimes feels like a lifetime ago, it was just back in August of 2011 that Standard & Poor’s downgraded the United States’ credit rating from AAA to AA+. Since then, concerns about US federal debt have gotten less and less attention with each passing year even as debt itself continued to rise.

For context, we think the number the last time we checked was just north of $22 trillion, while the federal deficit was just shy of a trillion dollars.

But should we even care?

After all, the US seems to have shouldered high levels of debt for a long time, and aside from the 2011 credit downgrade, doesn’t appear to have obviously suffered for it. Some proponents of a new idea called “Modern Monetary Theory” or MMT for short, even argue that as long as the Federal Reserve is around, US deficit spending is largely irrelevant.

Here to talk about what US debt actually means for taxpayers and policymakers, we’re joined by two excellent guests.

Tom Grennes joins us on the phone. Tom is a Professor of Economics Emeritus at North Carolina State, and author of a recent Mercatus paper on this topic titled “New Evidence on Debt as an obstacle to US Economic Growth" featuring his co-authors Mehmet Caner and Michael Fan.

Read the research, New Evidence on Debt as an Obstacle to US Economic Growth

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We have Kate Davidson here in the studio with us. Kate is a reporter for the Wall Street Journal covering the Federal Reserve and US economy from the Journal’s Washington Bureau, and before that she covered bank regulation and policy for Politico and American Banker.

Questions, comments, episode ideas? Email Chad at creese@mercatus.gmu.edu or follow him on Twitter at @ChadMReese.

Photo credit: Alex Wong/Getty Images

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