A brief aside (mostly to myself) before jumping into this topic. I can struggle to reach the finishline on some projects. Often, the reason for this is because I continue to push the finishline further away, striving for perfection. In this blog, I want to push back against this tendency. I am not going to be able to fully address issues like immigration, trade, vaccines, and our nation’s impending fiscal crisis in a blog post. Instead, I will just keep producing content. In Atomic Habits, James Clear makes an argument for quantity over quality. He notes that it if you continue to output products (whatever that may look like), you are bound to hit gold in some of them. Rather then spending excessive time on one project, keep things moving and your quality will improve as you produce. That is the strategy I am bringing to In the Data’s Own Words. I feel especially pressured to make this first post a fully comprehensive, no-stone-unturned, production but will instead rip the bandaid off and let the words flow. So, with the caveat that this post is woefully inadequate but such inadequacies will be addressed in my future work, let’s look at the fiscal course of our nation!
Addition after finishing first draft: Whew. That was way longer than I intended. I shouldn’t have chosen such a broad topic for my first post. There is simply too much to say and I feel this post is seriously inadequate. I also struggled to find my tone/audience through the piece. Is this to people who have never heard of the debt before? Is this to somewhat informed citizens who read their news? Is it for individuals with an undergrad-level understanding of macroeconomics? I think I struggled to have a consistent voice/tone. Generally, I want to take a more relaxed voice on this blog, though it is hard not to lean into a dry/more academic tone when talking about the national debt.
Introduction
The national debt is not a very approachable topic for most Americans. Thanksgiving political discussions would be about as dry as the holdiday’s talisman dish (turkey is just not good folks) if family members only debated the accumulation of gross national debt in our nation’s history. While the reasons behind this accumulation are more likely to cause sparks, to the average discusser the impact of $36 trillion in debt is less interesting fare. Though I may be wrong on this. Apparently, a majority of voters are concerned about the debt, with the Peterson Institute finding 75 percent of voters think addressing the debt should be a top-three priority for the president and Congress. I have some doubts on this conviction however and will continue with this blog post.
There are multiple reasons for why the national debt is not as charged of an issue as immigration, abortion, higher education, or welfare. Many of these reasons are valid. There is less of a moral component to the national debt, diminishing its importance relative to these other issues. However, I would argue that some of these reasons come from an unawareness that I will attempt to address in this forthcoming series on our nation’s fiscal extremes. This first post will address a few of these blindspots. First, people do not have a reference level for what our $36 trillion in debt means. Second, people do not understand the negative effects of debt. Third, people do not understand that this debt is the result of a trajectory – one that worsens as we look into the future. The following sections will explore the historical and projected data for three metrics: deficits, gross national debt, and gross debt as a percentage of our nation’s economy.
Deficits
You can’t have debt without deficits. So our exploration will begin here. A deficit is incurred when spending exceeds revenue. In the government’s case, this occurs when the tax revenues from individuals and corporations are insufficient to cover expenditures (aka outlays) on federal programs. A future post will look into this mismatch in more detail but for now we will just look at the result of this imbalance. The figure below depicts historical federal deficits since 1980 and projected deficits (2025-2055) from the Congressional Budget Office. The data are recorded for fiscal years (a fiscal year runs October - September: fiscal year 2024 ended September 30th, 2024).
It should be noted that the below chart depicts both surpluses and deficits ran by the federal government in the past 45 years. Looking at the historical data, we see that these surpluses are hard to find. Of these 45 years, only four saw revenues exceed outlays: 1998-2001. The reasons for these surpluses are complex but the broad explanation is simple. Surpluses are generated by a combination of increases in tax revenues, decreases in outlays, and economic growth (which affects revenues and outlays). While understanding these factors in achieving the 1998-2001 surpluses would take too long for this post, I will make note of each factor briefly. First, the 1990s experienced robust economic growth fueled by global trade, demographic factors (Baby-Boomers in prime working age), and, most importantly, an information-technology boom that accelerated worker productivity. Following the 1991 recession, the economy expanded in the rest of the decade, averaging a healthy 4.3 percent annual growth in the 1996-2000 period. As the economy grows, revenues increase from higher corporate and individual incomes. Additionally, economic growth lifts lower-income individuals off welfare rolls (reducing outlays for those programs) and reduces the political pressure for increased spending as unemployment is kept low. Secondly, early in his first term, President Clinton signed tax increases into law in 1993. Finally, spending decreased as a result of before-mentioned factors as well as legislation from Congress which established and enforced spending caps and offsets. Falling defense spending following the end of the Cold War also contributed.
Inheriting the Clinton surplus, President Bush believed this abundance should be returned to the American people, reducing taxes in both 2001 and 2003. Deficits return but remain manageable, even declining in 2006 and 2007 as President Bush scaled back his fiscal expansion. Growing economic woes lead to a reversal of this restraint, with a stimulus package signed by President Bush in early 2008. The deficit grew by nearly $300 billion in 2008 to $459 billion, nearly triple the 2007 deficit. Legislation responding to the financial crisis of 08-09 ratchet deficits skyward. In 2009, the deficit soared to $1.4 trillion, a 208 percent increase from 2008.
Deficits slowly decline, reaching a trough of $442 billion in 2015. However, this low point exceeds the peak of the previous, pre-crisis cycle in 2004 which was $413 billion. This reveals an important phenomenon that persists even when accounting for inflation. Policymakers are unable or unwilling to return to pre-crisis levels of spending. The responses to these crises are not merely a one-time hit to our fiscal health but up the ante, elevating the baseline level to a new, more dangerous height.
This is especially true of the last five years. Deficits grow somewhat steadily following 2015 but reach a record high $3.1 trillion in 2020 (a 218 percent increase from FY2019) as fiscal stimulus responding to the covid pandemic pours out of D.C. The recession following the epidemic was deep but short. Half of all job losses were recovered by fall 2020. All jobs were recovered by early 2022. Despite this short recovery, federal dollars continued to proliferate. This caused inflation and continued elevated deficits. For this fiscal year (FY2025), the Congressional Budget Office (CBO), Congress’s budget watchdog, projects the deficit will reach $1.9 trillion. This would be the third highest deficit in our nation’s history and lacks a crisis to warrant the excess.
We have finished our brief dive into history and now look out from our elevated position at the picture before us. Here we can see the nature of this beast and find a reason to care about our deficits: they just keep growing. Admittedly, this still is not sufficient reason to care, as we have yet to discuss exactly why these deficits are a problem. However, we can see from the right side of our chart that CBO projects these deficits to continue to rise, reaching an incomprehensible $6.4 trillion by 2055. These projections are under current-law assumptions that extend enacted legislation to 2055. Following what is currently on the books, means CBO accounts for the 2017 tax cuts to expire at the end of this year, which explains the decrease in the deficit in 2026 and 2027. These assumptions also do not account for any crises that are bound to occur in the next three decades and will inevitable require additional trillions from Congress.
This section was mostly a historical trip through the past 40 or so years of federal deficits. Our main insight from the data is that these deficits are persistent and worsening. That information is insufficient to be fully alarming but should be enough to cause unease. We have a massive beast here and lack the ability or will to seriously approach the creature.
Debt
What do those deficits do? They accumulate into debt. This section will briefly trace the history of our national debt then discuss why this accumulation is an issue.
The gross national debt reached $1 trillion in 1982. Twenty-six years later it hit $10 trillion in 2008. The next milestone, $20 trillion, was met nine years later in 2017. Reaching $30 trillion in 2022 took five years. CBO projects the $40 trillion milestone will be hit in 2027, another five year window but one that is not expected to include a global pandemic. Long story short: debt milestones are coming at an increasing rate.
It is about time I started offering some more comprehensive reasons for why you should care about debt and deficits. This topic is worthy of a standalone post but I will briefly go through three broad reasons.
- Stymies economic growth
When the government spends more than it collects, it must borrow the cash to cover the deficit. It does so by issuing debt through the Treasury and selling that debt to domestic and foreign investors. These investors exchange dollars for Treasury securities, choosing the risk-free income promised by government debt. This process reduces investment in the economy, harming long-term growth. Resources that would go to growing the capital stock are instead used to fund government expenditures. Businesses choose government debt over building a new factory. CBO analysis found that for every dollar increase in the federal deficit, private investment decreases by 33 cents. As large deficits persist, the government requires more and more buyers for its debt. To lure more buyers, it must offer a higher interest rate. This higher rate increases the attractiveness of government debt relative to other investments and further drags down growth.
- Rising interest costs steal more budget resources
How much does the govenment pay these lenders? How much will net interest cost the federal government in 2025? If you haven’t though about it before, give it a guess. On $36 trillion in gross debt, the US will pay $952 billion on interest for fiscal year 2025 – just a rounding estimate away from one trillion dollars. As of April 2025, this number exceeds the net worth of the four wealthiest individuals on the planet. It is also greater than all defense spending for 2025 ($859 billion) and is the second largest item in the federal budget, behind only Social Security. This absurdly large number is not spent on benefits for the vulnerable or to improve infrastructure but rather sends taxpayer dollars into the void. As large deficits persist, the interest rate the government pays rises, driving interest costs higher thereby worsening the deficit and creating a perilious spiral.
More generally, running elevated deficits in time of relative peace and prosperity means that when the crises do come, policymakers are more limited in their ability to respond. With a strained federal budget, adding trillions of dollars in federal stimulus becomes a significantly more dangerous task. In this scenario, interest rates would be high, making the debt incurred by the jump in federal spending send interest costs through the roof. Additionally, a large accumulation of debt in previous years means that when the crisis comes and rates shoot upward with the spike in outlays, rolling over the previous debt (issuing new debt to replace old debt) will become substantially more expensive. Further, investors would largely have their fill of government debt, making Congress even more reliant on the mercy of the Federal Reserve to finance its stimulus as the lender of last resort. The resulting inflation as the central bank monetized (printed money to purchase government debt) this spending would be hugely painful.
- Burdens future generations
There is a minority opinion among some economists that the debt is insignificant because it is money we "owe to ourselves." The idea here is that any liability a taxpayer has for the national debt is directly offset by the holding of that debt as an asset. So the government’s liabilities are the public’s assets. Drawing from 20th century Nobel laureate James Buchnanan, a simple depiction proves the error in this logic. A person, Lender, gives $100 to another individual, Borrower, who spends the money on personal consumption. Lender will be down $100, but recieves an IOU from Borrower for this $100. Borrower incurs a $100 liability but, because of how he spent this money, he does not have any offsetting assets. Now imagine the two get married, combining their finances. Lender’s recieved IOU and Borrower’s liability cancel out, making the debt vanish. The problem is that the $100 dollars has also vanished. As a couple, the two are down $100 in wealth. The key here is how the $100 was spent. Borrower chose immediate consumption rather than productive investment. Buchanan writes that accumulating debt “to finance current consumption will permanently decrease the flow of potentiall available income.” He puts this more simply: “By financing current public outlay by debt, we are, in effect, chopping up the apple trees for firewood, thereby reducing the yield of the orchard forever.” Policymakers view deficit spending as a free way to deliver on campaign promises. This is a twisted misconception, as the pain from such profligate spending will be bourn at some point – maybe just after the politician’s career. Taxpayers will bear the burden of this debt in higher taxes, higher inflation, and, as the apple orchard is increasingly diminished, reduced economic growth.
Of course, as we noted earlier, this reduction in future growth depends on how the money is spent. Unfortunately for posterity, the vast majority of federal spending is for the here and now. According to the Office of Management and Budget (OMB), a mere 4 percent of all federal outlays were spent on investments in public physical capital in 2023. Research and development consumed outlays were just 2.8 percent. Instead, the majority of the budget, 71 percent, was spent on transfer payments to individuals. As the table below shows, these are all significant changes from the 20th century. This is a different sort of spending.
Suprisingly, 2008 Nobel laureaute and former NYT columnist, Paul Krugman, (who I cited earlier as misunderstanding the debt) once noted (or renoted) that the US government is “an insurance company with an army.” The entirety of this present-minded consumption is not devoid of value. A nation should possess a safety net to limit the number of individuals who fall through the cracks of the economy. However, the dramatic rise in entitlement spending since the 1960s has led to our fiscal instability. This spending is popular, with policymakers unable to reduce its growth without political consequences, and will increase dramatically under the forthcoming demographic crisis as our population ages. More on that some other time. The main point is that our debt is insidious as it postpones the pain to future taxpayers in the form of increased taxes to address the imbalance, higher borrowing rates (homes, autos, credit cards), higher prices as the central bank finances Congress’s largesse, and reduced economic opportunity as the orchard is burned.
Debt to GDP
Debt matters. However, the nature of the debt and the broader economic context is essential for determining the debt is a problem. The nature of the debt (where do these borrowed dollars go) was discussed in the previous section. This section will examine the debt-to-GDP ratio, explaining why this is a more comprehensive method of looking at the debt.
The debt-to-GDP ratio is the result of dividing our federal debt by our gross domestic product, the dollar value of our nation’s goods and services produced in a single year. This ratio allows us to better understand the debt in light of our overall economic health. With this metric, we can make more meaningful comparisons between our debt now and our debt fifty years ago. Looking at the previous charts, while we can see an absolute increase in the deficit from 1980 to now, we know that the overall increases in prices since 1980 (inflation), mean that a 1980 dollar is not a 2025 dollar. The debt-to-GDP ratio helps fix this issue by giving a measure of our debt relative to the year’s nominal (not adjusted for inflation) GDP. Because both of the variables experience the same price increases through history, the ratio between the two eliminates the distraction of inflation. There is little worthwhile historical comparison we can do without measuring variables either in constant dollars (adjusting for inflation) or as a share of GDP. Additionally, as nations vary significantly in their size, we cannot compare the absolute debt level between the US and Switzerland without accounting for our vastly different populations and economies. The debt-to-GDP ratio addresses this. The below chart shows gross federal debt as a percentage of our econonmy.
No matter how you slice it, our debt doesn’t look good. Following the grey dotted line across the chart we see that our level of indebtedness exceeds the World War II peak in 1946 of 119 percent. Currently, our gross-debt-to-GDP ratio is roughly 123 percent. This is a little less than twice the average level from 1940-2024. Five years out from the last crisis and we are still running absurd deficits, leaving our indebtedness at this elevated level. As noted earlier, the covid recovery was swift, the fiscal recklessness that continued was unwarranted. Gross debt includes intragovernmental borrowing, debt incurred when the federal government borrows within itself (mostly from the Treasury borrowing from the Social Security trust fund). Leaving out this roughly $7 trillion intragovernmental debt, we are still left with a debt-to-GDP ratio of 100 percent for fiscal year 2025. Furthermore, there is a large body of evidence suggesting this level of indebtedness is where conditions really begin to deterioriate. In this review of the literature by Jack Salamon and Veronica de Rugy, research fellows at the Mercatus Center, they evaluated 24 empirical studies of debt’s impact on growth and whether there exists a debt-to-GDP threshold past which significant economic damage is likely. All but two of the reviewed studies found a negative impact of government debt on economic growth. A large majority (17) found a debt threshold, with 12 putting this threshold between 75-100 percent.
The analysis only considers public debt, so we should use the 100 percent figure for the United States to find where we stand in light of their findings. From the literature’s consensus we may assume we are at max capacity on our indebtedness. Continuing our fiscal indulgence will have increasingly negative effects on our economic growth. This directly translates to lower living standards for Americans. As we see in CBO’s projections, there is nothing in place to stop this trajectory. Salamon and de Rugy use two studies conducted in 2010 and 2013 to estimate the “debt drag effects” on real (inflation-adjusted) GDP in the 2019-2049 period. The pair note that “the effects of a large and growing public-debt-to-GDP ratio on economic growth could amount to a loss of $4–$5 trillion in real GDP.” This translates to a per capita real GDP that is $9,000 to $13,000 less by 2049 than it would be otherwise ($82,000 - $86,000 vs $95,0000). From this analysis and our observation of the current debt-to-GDP as well above the historical average, we can conclude we have a real problem here.
Conclusion
In this post, we flew through a historical review of our recent deficits, examined reasons for why we should care about the debt, and finished with a more holistic view of our debt by relating it to GDP, finding that even accounting for our considerable wealth, we are in a dire situation. Our exploration revealed that our debt is a historical annomaly both in its size – in absolute terms and as a share of the economy – and its nature – how it is being spent. Furthermore, we went over reasons for why this debt is dangerous, understanding that it is more than just a scary amount of dollars. We ended by augmenting this theoretical discussion with empirical evidence finding a clear negative impact of debt on our economic prospects. Throughout our analysis, we uncovered the worrying trajectory of the debt. As things stand, this issue will continue to worsen. With structural imbalances in our demographic and a potential debt spiral induced by rising interest rates, absent serious reform we are in for a fiscal crisis.
Notably, we did not spend much time on how federal spending has evolved in the past fifty years. What exactly is creating this looming debt? I mentioned the rise of transfer payments and aging US population which will lead to higher federal expenditures on Medicare and Social Security but a more full analysis on this topic is required. Additionally, we did not talk about the comparison between federal revenues and outlays. Is it actually declining tax revenues that are creating this fiscal imbalance? In short, no. I will address this question and the broader source of these deficits in a future post. For now, we will simply have to conclude that our national debt is a serious, worsening issue that you should care about. Till next time!