Amidst our other economic woes, another looms: stagnant growth resulting from our government’s high debt. As more and more debt accumulates, private investment is crowded out, leading to weaker growth.
When debt reaches 90 percent of GDP, economies experience significant growth problems. Heritage Foundation economist Salim Furth explains:
In one study, Manmohan Kumar and Jaejoon Woo of the International Monetary Fund (IMF) find that high-debt economies grew 1.3 percentage points slower than their low-debt counterparts. The negative effects of debt builds steadily as debt grows from low (below 30 percent of GDP) to high (above 90 percent).
Over a decade, a difference of 1.3 percentage points of growth would be $11,000 more—or less—every year per family in the U.S. That’s enough to send the kids to a state college or move to a nicer neighborhood.
Over the last several years, government debt has risen at an alarming rate. Counting federal, state and local debt, “U.S. debt has zoomed from 48 percent of GDP in 2007 to 84 percent in 2012,” Furth reports.
“We stand at the 84 percent threshold,” he continues, “and we may either lurch ahead into a future where high debt and low growth are facts of life for a generation or hold back and allow our economy to grow faster than our debts.
There is a way out of this. We still have time to tackle the national debt–but time is running out. Heritage’s “Saving the American Dream” plan outlines how we can restore economic growth by slashing federal spending, making taxes fairer and flatter, and otherwise getting government out of the way.
How would you go about cutting the debt?