What the Debt Actually Costs
How Much Productivity Does the Debt Require?
The arithmetic can be run backwards. Fix the deficit and the interest rate, and it tells you exactly how fast the economy has to grow — and therefore what has to be true for the plan to work.
13 min190 XP available4 challenges
Instead of choosing growth and seeing what happens to the debt, fix the debt and the budget and solve for the growth rate that holds the ratio still. Anything above the number and the ratio falls; anything below and it climbs. Since inflation is roughly 2% by policy and the workforce grows slowly, whatever is left over has to come from productivity — which is the number to compare against the 1.5% or so the United States has actually managed since 2005.
Nominal growth needed to hold the ratio still
7.22%
Above this the ratio falls; below it, it climbs
- What the ratio does at 4% nominal growth
- 4%
Interest and growth only, no budget decision
Rising as the cheap debt of the 2010s rolls off
Negative is a deficit
Find a combination that requires more than 7% nominal growth — and notice what it would take
- Try 0% — not yet
- Try 8% — not yet
- Find a combination that requires more than 7% nominal growth — and notice what it would take — done
Answer to continue.