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A debt hawk and a debt dove on what the future could hold for federal debt

AILSA CHANG, HOST:

The U.S. debt is close to the highest it has ever been as a share of our gross domestic product. That's notable, but is it something to worry about? Well, our colleagues over at The Indicator From Planet Money spoke to a debt dove and a debt hawk for their thoughts.

DARIAN WOODS, BYLINE: Maya MacGuineas is the president of the Committee for a Responsible Federal Budget, and she's our debt hawk.

MAYA MACGUINEAS: Interest payments this year will actually be larger than national defense spending for the first time.

WOODS: And that's not a small number.

MAYA MACGUINEAS: No, that's not a small number. I was going to say, whether you think we spend too much or too little on national defense, that is one of the largest items in the entire federal budget - about $6,600 per household.

MARTHA GIMBEL: I mean, sure.

WAILIN WONG, BYLINE: Martha Gimbel co-founded the Budget Lab. She's our debt dove.

GIMBEL: I think it gets to the question of why we took out that debt in the first place, and did we think it was a good idea at the time? So if you are going into debt to, for instance, buy a house that you and your family are going to live in for many years, that can be a reasonable investment that's going to have payoff for you. If you're going into debt to go to Disneyland, that's probably just going to cause problems for you down the line.

WOODS: But Maya, our debt hawk, doesn't believe all the government spending has been investments that will pay off in the future.

MAYA MACGUINEAS: The bulk of the government's money goes to consumption. Over 80% goes to consumption, not investment.

WONG: In other words, no more than 20% of government spending typically goes to things like railroads, public health research and retraining for veterans - you know, investments that might improve prosperity in the future. The rest goes to things like unemployment benefits, Social Security and Medicare.

WOODS: And Maya is not saying the government shouldn't spend money on these things per se. In fact, she says borrowing and spending can be really useful in a downturn.

MAYA MACGUINEAS: The most recent and painful example was COVID. Thank goodness we were in the condition that we were able to borrow trillions and trillions of dollars. But you don't want to borrow when there's no reason to. And for instance, the three years under the Trump presidency before COVID hit, we were borrowing for basically everything, and that didn't make sense. That was running the economy hot.

WONG: The 2017 Tax Cuts and Jobs Act meant that without corresponding reductions in spending, the government had to borrow more than it otherwise would have.

WOODS: Regardless of what their debt is used for, could it get too large and result in the U.S. government defaulting on its payments? Martha isn't concerned about this. Maya says she isn't either.

MAYA MACGUINEAS: We borrow in our own currency. That's what makes us different than other countries that might have a huge fiscal crisis. And we are the reserve currency of the world. So even when there is a big recession, we're usually able to borrow without concern because people buy U.S. treasuries.

WOODS: There is one thing, though, that worries both of them - all the brinkmanship around the debt ceiling.

GIMBEL: I would become a lot more concerned if political dysfunction and political risk increases. When you've seen some of the credit ratings agencies downgrade U.S. debt, one of the things they've mentioned is political risk in the United States.

WOODS: Both make the case that we should debate taxes and the quality of government spending while not making that debate so toxic that investors lose faith in the U.S. government.

WONG: Wailin Wong.

WOODS: Darian Woods, NPR News.

(SOUNDBITE OF RED HOT CHILI PEPPERS SONG, "SCAR TISSUE") Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Wailin Wong
Wailin Wong is a long-time business and economics journalist who's reported from a Chilean mountaintop, an embalming fluid factory and lots of places in between. She is a host of The Indicator from Planet Money. Previously, she launched and co-hosted two branded podcasts for a software company and covered tech and startups for the Chicago Tribune. Wailin started her career as a correspondent for Dow Jones Newswires in Buenos Aires. In her spare time, she plays violin in one of the oldest community orchestras in the U.S.
Darian Woods is a reporter and producer for The Indicator from Planet Money. He blends economics, journalism, and an ear for audio to tell stories that explain the global economy. He's reported on the time the world got together and solved a climate crisis, vaccine intellectual property explained through cake baking, and how Kit Kat bars reveal hidden economic forces.