How the U.S. Debt Problem Magnifies Unemployment

How the U.S. Debt Problem Magnifies Unemployment

How the U.S. Debt Problem Magnifies Unemployment

This week, Treasury reported that raising the debt ceiling caused gross U.S. debt to reach 100 percent of GDP. An even more telling measure, our “net debt,” stands at 67 percent of GDP, not 100 percent, said Mercatus Center economist Matt Mitchell. But the CBO projects net debt will reach 100 percent of GDP within 10 years. 

“This is worrisome because the best economic studies show that a nation’s economic growth tends to be cut in half when its debt-to-GDP ratio exceeds 90 percent,” said Mitchell.

It would be nearly impossible to fix our unemployment problem if the economy’s growth rate were hobbled by that level of debt, he said.

“Less economic growth exacerbates the jobs problem,” said Mitchell. “It means lower wages, fewer opportunities, and an overall lower standard of living.”

Some people are worried that austerity will harm the economy, he said, but there is never a ‘good’ time for austerity and necessary cuts will only get larger and more painful the longer we put them off.

“Austerity is not a slam dunk, but researchers have found that spending cuts are less likely to harm the economy than revenue increases,” said Mitchell. “The likelihood of austerity boosting the economy is just as good as stimulus measures, like infrastructure spending. But, it doesn’t add to our debt.”

 

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