Budgetary experts have been promising us a future “crisis” related to the national debt for years, and in some instances, decades. If you’re reading this, you likely know some of their names: MacGuineas, Riedl, Galston, Bourne, Boccia, Jenkins, Rampell, and even Musk. To say the list is truncated insults understatement. Without much exaggeration, you could fill a Rose Bowl with all the economists, pundits and politicians who’ve long associated “national debt” with “disaster” and “crisis.”
The unfortunate news for the myriad predictors of doom is that they’re incorrect. That’s not an opinion, it’s just a comment that markets are efficient, brutal, and always forward looking: looking into the future, the markets for the most owned income streams in the world (Treasuries) are not forecasting what the experts have forecasted, and will continue to.
In truth, and as expected, as the size of the national debt has risen, interest rates on that same debt have declined. This trend will continue precisely because the experts continue to focus on the size of the debt, as opposed to why the debt is so sizable. There’s a crucial difference.
By producing endless forecasts promising disaster ahead because of the size of the national debt, they blithely ignore the soaring tax revenues now and in the future that enable all the borrowing. There’s your crisis: copious amounts of wealth extracted in taxes, amounts that will grow so much in the future that as George Will recently wrote in pessimistic fashion, the ability of Treasury to run up quite a bit more debt in the future “probably will accelerate.” Yes, it will. What takes in a lot of tax revenue, and is expected to take in a lot more tax revenue in the future, can borrow with ease and in growing amounts.