Most Americans are alarmed by the level of U.S. government borrowing. Treasury Secretary Janet Yellen isn't one of them
are alarmed by the level of U.S. government borrowing. Treasury Secretary Janet Yellen isn’t one of them.
Don’t count Yellen among the alarmists, though. That’s partly because she’s using a different debt yardstick. With all the caveats that public finances and household budgets are fundamentally different things, the logic is similar to assessing the affordability of a mortgage. What matters most isn’t necessarily the amount borrowed, but how much a homeowner has to pay each month or year compared with their income over the same period.
The government’s interest bill has fallen in recent decades as a share of the economy, thanks to lower borrowing costs over the period. Net interest as a percentage of GDP, without adjusting for inflation, has averaged about 1.5%, though it climbed to 1.9% in 2022 after the pandemic borrowing surge. When rates and prices are both going up, Furman says that “in one sense, next year’s debt is even bigger than this year’s debt, because it goes up with interest. But in another sense, next year’s debt is smaller, because part of it is inflated away and so you don’t need to pay back as much.”
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