Biden's Chief Economist: The Chart That Convinced Me Our Debt Is a Serious Problem

New York Times

09-07-2025

Budget hawks have fretted for decades about America's deficits and debt, repeatedly advising our government to embrace greater fiscal austerity. And for just as long, budget doves — myself included — fought this narrative, repeatedly arguing that austerity often does more harm to our economy than good.
No longer. I, like many other longtime doves, am joining the hawks, because our nation's budget math just got a lot more dangerous.
If we continue to ignore the unforgiving trajectory we are on, we are inviting a debt shock, a kind of crisis that periodically hobbles lower-income and developing countries. If our government is forced to address spiraling debt either by quickly and aggressively cutting spending or by raising taxes, it would seriously damage the economy and lower the living standards of everyday people.
The sooner we take action, the better chance we have to avoid this fate.
The sustainability of our nation's debt is determined by three variables: the size of our annual deficits, the rate of interest on the debt, and how fast the economy is growing. As shown by Olivier Blanchard, one of the most influential thinkers in this area, a government can sustain modest budget deficits so long as its economy is growing faster than the interest rate on its debt.
It's similar to what happens when college-bound students take on loans to pay for their education. So long as they haven't borrowed too much, and their income after graduation is rising faster than their student loan bills, they can make their monthly payments without breaking a sweat.
Conversely, though, if they borrowed to the hilt — and if their student loan debt starts growing faster than their income — they can quickly get in trouble. And that's where our country is right now.
Warning sign
The risk of economic damage jumps when the interest rate on the national debt exceeds the growth rate of the economy.
Growth rate
3%
2%
Interest rate
1%
0%
–1%
–2%
2000
2020
2005
2010
2015
2025
1995
Source: Update of Blanchard's Figure 3.3 from his book "Fiscal Policy Under Low Interest Rates"
Note: Adjusted for inflation.
Warning sign
The risk of economic damage jumps when the interest rate on the national debt exceeds the growth rate of the economy.
3%
Growth rate
2%
1%
Interest rate
0%
-1%
-2%
1995
2020
2025
2000
2005
2010
2015
Source: Update of Blanchard's Figure 3.3 from his book "Fiscal Policy Under Low Interest Rates"
Note: Adjusted for inflation.
Want all of The Times? Subscribe.