Some policymakers think that the federal debt is a free lunch: growth rates will always exceed interest rates, allowing growth itself to reduce the debt. This theory is badly flawed, explain Sita Slavov and Alan Viard at The Hill:
There is always a chance that the rollover strategy will fail and will do so precisely when the economy is performing badly and adjustment is most painful. As growth rate falls or the interest rate rises, leaving the interest rate higher than the growth rate, the rollover strategy causes the debt to rise faster than the economy. Government borrowing will outstrip private savings, and the capital stock steadily shrinks. To avert destruction of the capital stock, the government must stabilize the debt ratio, which forces either tax increases or spending cuts on future generations.
Moreover, even when the safe interest rate remains lower than the growth rate, the risky rate of return on business capital is likely to be higher than the growth rate. The lost output from displaced capital then rises relative to the economy, and future generations are harmed as the smaller capital stock reduces productivity and drives down market wages.
Even with low interest rates, government debt is not a free lunch. Instead, it poses a tradeoff of benefiting current generations at the cost of future generations. While there is no magical formula to determine the correct response to such a tradeoff, commentators across the political spectrum have voiced concern that the unrelenting debt level slated to occur under the current policies is both undesirable and unsustainable.
TINSTAAFL: THERE IS NO SUCH THING AS A FREE LUNCH.