“Representative Paul Ryan, chairman of the House Budget Committee, declared this month that the U.S. national debt “is hurting our economy today.” It’s an idea embraced by almost every Republican and even some Democrats.
Economic data — on jobs, housing and investment — don’t support that claim. And economists across the political spectrum dispute the best-known study of the subject, by Carmen Reinhartand Kenneth Rogoff, which found that nations with debt loads greater than 90 percent of their economies grow more slowly.
Three years after a government spending surge in response to the recession drove the U.S. past that red line — the nation’s $16.7 trillion total debt is now 106 percent of the $15.8 trillion economy — key indicators reflect gathering strength. Businesses have increased spending by 27 percent since the end of 2009. The annual rate of new home construction jumped about 60 percent. Employers have created almost 6 million jobs.
And with borrowing costs near record lows, the cost of paying off the debt is lower now than in the year Ronald Reagan left the White House, as a percentage of the economy.
“The argument that heavy debt loads slow economic growth doesn’t hold a lot of water,” says Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia who oversees $12 billion. “It suffers from a mix-up of cause and effect: When weak economic conditions arise, it tends to encourage deficit spending, which is what has led to more U.S. debt being issued, and not the other way around.”
