The national debt: Inform your coverage with these 3 tips from our webinar

The amount of debt held by the public is nearly equal to the size of the entire economy. Why does this matter, and how can journalists make the national debt relevant to audiences who don’t normally follow the news on government borrowing and spending? To answer those and other questions, we convened a webinar on July 14 with three scholars who study the national debt and fiscal issues. EconoFact, a nonpartisan website from Tufts University that covers economic policy, co-hosted the webinar. The panelists were Daniel Bergstresser, an associate professor of finance at Brandeis University; Karen Dynan, a professor of the practice in the Department of Economics at the Kennedy School of Government at Harvard University; and Douglas Elmendorf, a distinguished service professor at Harvard who served as dean of the Kennedy School and previously as director of the Congressional Budget Office. I moderated the discussion with Michael Klein of Tufts University, founder and executive editor of EconoFact. The federal debt held by the public stands at nearly $31.5 trillion. Intragovernmental debt, the amount the federal government owes its agencies and trust funds, is about $7.6 trillion, or “money in one pocket that is owed out of another pocket,” as Bergstresser said during the webinar. It’s the public debt, over $31 trillion, that represents how much the federal government owes to the bond market. Read our explainer on the national debt for more detail about how the federal government borrows money to make up for budget gaps. And watch the webinar below. But, if you don’t have time, keep reading for three takeaways. 1. Explain that high debt increases the risk of a fiscal crisis, but it’s not the only factor. The panelists discussed the potential for a fiscal crisis in which interest rates rise and a recession follows. The higher interest rates are, the higher the cost of borrowing. Since the federal government finances roughly one quarter of its yearly operations through borrowing, higher interest rates mean it costs more to run the government. A fiscal crisis centering on higher interest rates would stem from a crisis of confidence among investors who buy U.S. securities, like bonds. Those securities are essentially loans. When investors lose confidence in the government’s ability to pay back its debts, they demand higher interest rates. “Such a crisis could raise interest rates for anyone trying to borrow money,” Dynan said. “It could trigger disruptions for banks and pension funds, and it could cause a recession and widespread job loss.” Reporters can help the public better understand the national debt by explaining that high federal debt doesn’t mean a fiscal crisis is imminent — but it does increase the risk. “Crises do not occur when a single indicator crosses a particular threshold, nor are they typically caused by individual policy errors,” Elmendorf said. “Instead, crises tend to emerge from interactions among high debt, political dysfunction and stresses in financial institutions.” Crises are also determined by investor expectations, Elmendorf explained. If investors think fiscal policy will change and their interest returns will be affected, they’ll adjust how much they expect to make in return for lending to the government. And interest rates on government debt affect the interest rates paid by businesses and everyday Americans, Dynan said. Businesses and households looking for loans, whether to hire workers or to take out a mortgage, pay more when the government pays more. 2. Offer scale and context for the size of the national debt. The national debt held by the public is nearly equal to the nation’s gross domestic product — meaning public debt is roughly the size of the entire economy. GDP measures the value of all goods and services produced in the U.S. Rather than solely reporting the dollar value of the public debt, reporting the debt-to-GDP ratio allows for comparisons across time, which can provide context. Debt-to-GDP spiked from about 80% before COVID and has hovered near 100% since the pandemic. “Federal debt at 100% of GDP is large relative to our history in the United States,” Berstresser said. “The only precedent for this in the U.S. is the end of World War II.” The reason debt-to-GDP is a good contextual figure is that it’s a proxy for the tax base that the government could draw from to pay back the debt, Klein explained. “You don’t want just the absolute number because the economy is much larger than it was in 1946 or 1960 or 1980,” he said. “Just looking at the number by itself doesn’t give you that much information. It’s the number relative to the potential resources available in order to pay the money that’s owed.” Debt-to-GDP also allows for international comparisons, Bergstresser added. Reporters can use this ratio to compare the ability of the U.S. government to pay off its debt with the relative debt situation in other countries. 3. Remind audiences that more debt means less ability to spend on other priorities. When the national debt is relatively high the federal government is less able to respond to societal needs, whether related to climate change, a pandemic, national security or something else. It’s a concept called fiscal space, which says that a government’s ability to spend — and its ability to borrow to spend — is limited. “The more debt we’re carrying, the less, as a country, the less ability we have to respond to emerging needs,” Elmendorf said. High government debt also tends to raise interest rates. As interest rates are pushed up by government borrowing, some households and businesses will forgo taking out loans because they’re too expensive. It’s an economic concept called “crowding out.” “The cost of all this debt is that it crowds out private investment or other investment in productive capacity,” Bergstresser said. “Anytime somebody talks about a future that involves productivity growth or new technologies that will enable productivity growth, typically those are going to require a great deal of investment.” Expert Commentary