While ten trillion sounds more reasonable
I don't know if it's more "reasonable" or not, but if the estimates of $10-$30 trillion are accurate, $10T is preferred.
Can the US pay for another war?
Well, the short answer is "as much as the rest of the world will allow." The dollar's status as the world's prevailing reserve currency has become a facet of U.S. power, allowing the United States to borrow effortlessly and sustain an assertive foreign policy. But the capital inflows associated with the dollar's reserve-currency status have created a vulnerability, too, opening the door to a foreign sell-off of U.S. securities that could drive up U.S. interest rates. Accordingly, it comes down to this: if the U.S. doesn't piss off the wrong nations, the debt it can carry has no material limit provided it's assumed for prudent ends.
The predicted outstripping of public debt relative to national GDP among rich nations, not just the U.S., has in recent years have wrought a resurgence of the popularity of austerity, long a thing that follows a cycle as do hemlines, spurring policymakers to stem spending growth and increase tax revenues. [1] Is this concern warranted? Well, the conventional wisdom says no, but Rogoff, Bulow, Obstfeld, Reinhart have argued yes. Most notably and directly in
“Growth in a Time of Debt” (
summary here)
, Rogoff and Reinhart assert sovereign debt creates a burden on the rest of the economy.
The rigor of their analysis, for as compelling as it seems, leaves out a key element: they don't offer the barest evidence or illustration of
how public indebtedness restrains growth. Both
Shiller and
Krugman have remarked upon this gap. They are correct and even Rogoff's devotees must admit that deeper consideration is needed to take Rogoff's notions as convincingly conclusive. While debt matters, nobody denies that, the precise way it impinges upon an economy isn't as clear-cut as Reinhart-Rogoff would have us believe.
How much public debt is too much? There is no straightforward answer: state and public investor capriciousness, foreign policy actions and their impacts, productivity, savings ratios, pension holdings, etc. all factor into the equation. It's been typically understood that many countries, especially the U.S., can afford to have significantly higher ratios of government debt to national income. Of course, the way in which we calculate these debt/income ratios may also be misleading, but so far, I'm not aware of anyone having come up with new, sustainable and accepted alternatives.
Able to afford it, however, is a pragmatically critical question, but equally important are the answers to the normative questions about assumptions of public debt. Perhaps there is a better place for inquiry in a venue such as this.
Note:
- That is, of course, except Trump who aims to reduce debt via his proposal of the perennially with taxpayers popular notion of decreasing tax rates while also increasing federal defense outlays. The solvency of his ideas in this regard are predicated, presumably, on his regulatory retrenchments and tax cuts catalyzing sufficiently greater inflows to offset the tax rate reductions. That idea violates the rationally arrived at empiricism of even the most fancifully optimistic projections, and Trump nor his factotums have offered any competing rigorous analysis to the contrary.
