Brian Riedl at the Manhattan Institute:
Today’s trendy economic argument asserts that the current debt-to-GDP ratio of 100% has not harmed the economy, and therefore Congress can easily afford large new government expansions. But that argument has two fatal flaws. First, it fails to acknowledge that over the next few decades—even without new legislation—the debt is already projected to reach levels that even debt doves would likely consider unsustainable. Second, this argument assumes that interest rates will forever remain near today’s low levels, thus minimizing Washington’s cost of servicing this debt. However, economic trends rarely remain linear indefinitely, and interest-rate movements have rarely followed forecaster projections. Indeed, several realistic economic scenarios could easily push interest rates back up to 4%–5% within a few decades—which would coincide with a projected debt surge to greatly increase federal budget interest costs. Debt doves have no backup plan for this possibility. Policymakers should now enact reforms that scale back the escalating long-term debt projections in order to limit the federal government’s risk exposure to a fiscal crisis.