In industrialized countries, debt rose to 110.7 percent of GDP in 2012, from 77.2 percent in 2006 (this is general government gross debt as a percentage of GDP, calculated by the IMF as an unweighted average across countries; the data are from the IMF’s fiscal monitor). Most of this increase was caused by automatic stabilizers, as well as the higher spending (on programs such as unemployment benefits) and decrease in tax revenue that occur in a recession.
Seen in that context, the increase in the U.S. general government gross debt — to 106.5 percent of GDP at the end of 2012, from 98.2 percent at the end of 2010 and 66.1 percent in 2006 — was very much in line with the experiences of other countries. (Net debt, which excludes government debt held by other parts of the official sector, is a better measure but it is also harder to compare this across countries in a reliable manner.)
In terms of net general government debt held by the private sector, at the end of 2012, the U.S. was at about 89 percent of GDP, from 48.4 percent in 2007. This number will reach 87.6 percent in 2016 and 86.6 percent in 2018, according to the IMF (see the April 2013 Fiscal Monitor for the latest projections). Even so, this is unlikely to cause any kind of serious immediate fiscal crisis.
We must remain unhappy that we had a huge financial crisis. And we can complain that the form or scale of fiscal stimulus wasn’t to our liking (too small or too big).
We should have a reasonable discussion about the pace and method of deficit reduction now. I offered my views in testimony to the Senate Budget Committee last week. The hearing was cordial and productive. And we should also talk much more about what government should do and how we want to finance those activities in a sustainable manner.
The real danger is that the political process will produce another scary, needless confrontation over the debt ceiling that will significantly slow the recovery. The debt ceiling should be taken completely off the table.
Simon Johnson, a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics, is co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”