What is the impact of government debt on economic growth? Salim Furth at Heritage did a great job of outlining that today:
In one study, Manmohan Kumar and Jaejoon Woo of the International Monetary Fund (IMF) find that high-debt economies grew 1.3 percentage points slower than their low-debt counterparts. The negative effects of debt builds steadily as debt grows from low (below 30 percent of GDP) to high (above 90 percent).
Over a decade, a difference of 1.3 percentage points of growth would be $11,000 more—or less—every year per family in the U.S. That’s enough to send the kids to a state college or move to a nicer neighborhood.
Furth just did precisely what politicians should have been doing all along–place these arguments about the national debt, deficits, and GDP in the context of how they stand to affect the average American family. People simply don’t become passionate about things that feel removed and distant from their everyday lives. Big numbers and fancy statistics don’t mean anything if we don’t understand how they affect the food we can put on our dinner tables, the price of things we purchase at the grocery store, and/or the amount of money we’ll have in our bank accounts to put toward family expenses week to week.
The U.S. has rapidly accumulated debt in the past five years. Using the IMF’s measure of federal, state, and local debt, U.S. debt has zoomed from 48 percent of GDP in 2007 to 84 percent in 2012.
In another study, Stephen Cecchetti, Madhusudan Mohanty, and Fabrizio Zampolli of the Bank for International Settlements use an econometric technique to identify the cutoff point after which high debt is particularly damaging to growth: 84 percent.
In other words, the time to fix things is now. I don’t know that Americans have the appetite to tackle entitlement reform or that many understand the gravity of our $16.6T debt. What I do know is that putting these enormous numbers in the context of how they affect our day-to-day lives today and tomorrow is key.
Individuals and families have budgets. We know what it means to cut costs. We know what happens if we keep spending money we don’t have.
So let’s talk about these things in ways that make sense. Facts and figures don’t mean anything if they don’t translate into real costs and real struggles that people can relate to.
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