In the midst of the most severe recession since the Great Depression, large increases in the federal budget deficit were inevitable and remain necessary to address the jobs crisis. The United States must create more than 10 million jobs to move the unemployment rate back to even its undistinguished pre-recession level, and debt-financed public safety net spending and investment remain the most plausible way to enable this.
Today’s policy makers, however, are extremely reluctant to pursue policies that would increase the deficit, even in the short-run. Opponents of providing more support to the job market often cite projections of the nation’s public debt in the coming decade as reason to fear higher deficits. The Congressional Budget Office projects that this debt will exceed 80% of total gross domestic product (GDP) by 2020 if the Obama administration’s policy plans are followed, while the Office of Management and Budget (OMB) projects that the debt will reach almost 70% of GDP by that year. Under either scenario, national debt would be almost 20 percentage points higher than any year since 1955.
This Briefing Paper aims to answer the most fundamental questions raised by these projections: (1) what has caused the rise in public debt; and (2) does this increase provide cause to worry about the future growth prospects of the American economy.