Federal Debt: More Than You Want to Know

How it got so big and what should come next (but won't)

Source: FRED

Recently David Sacks, a Silicon Valley investor who is now Donald Trump’s AI and crypto czar (gag me with a blockchain), raised an interesting question about federal debt.

True, he did so in the course of saying something really stupid. Are tech bros even more arrogant and ignorant when they make pronouncements about the federal budget than they are on other topics, or does it just seem that way to me because I know something about the subject? Still, a good question is a good question, no matter who asks it or why.

So here was Sacks’s pronouncement:

If he actually did ask where the money went, any random economist would tell him that detailed historical budget information is available from both the Congressional Budget Office and the Office of Management and Budget. (Hint: We didn’t spend the money paying Social Security to dead people.) But as the chart at the top of this post shows, he’s not wrong in saying that we have World War II levels of indebtedness.

So how did we get here? What could/should we have done differently? What should we do in the years ahead?

Beyond the paywall is a sort of primer, like the one I did on tariffs. It will cover:

1. The effects of deficits and debt

2. The reasons it sometimes makes sense to run budget deficits and hence run up public debt

3. The specific reasons debt increased a lot after the global financial crisis of 2008, and whether there was any good way to have avoided that rise

4. What we do now, and why we’re unlikely to do it

Not to be coy, most of the run-up in debt over the past 25 years actually took place for good reasons, and it’s hard to tell a story in which we ended up with substantially less debt without paying a heavy price in high unemployment. But we are now at a point where continuing to run up debt no longer makes sense. Even people like me, who are usually relaxed about debt, would really like to see a serious effort to slow the rate at which debt is rising. And under current conditions we could rein in the growth in debt without doing major economic damage if politicians — especially Republicans — were willing to act responsibly.

But they aren’t.