U.S. Debt Just Surpassed GDP. Here’s Why Economists Say You Don’t Need to Worry—Yet

 Late last month, fiscal watchdogs issued a concerning update on the state of federal finances: The national debt had finally hit and then surpassed 100 percent of the gross domestic product, with new data from the Bureau of Economic Analysis suggesting the country’s public debt now exceeded a 1 to 1 ratio with GDP.

The tone among budget hawks was dire. The president of the Committee for a Responsible Federal Budget called it an “especially loud” alarm bell, predicting that America will exceed its all-time-high debt-to-GDP ratio—106 percent, hit right after World War II—all too soon. The similarly positioned Peterson Foundation called it “both a disturbing warning and a call to action,” and similarly warned that we’ll imminently surpass that post-WWII high-water mark. (The Foundation currently puts the national debt at just under $39 trillion.)

Yet as attention-grabbing as this development may sound—our debt is now bigger than our economy!—it’s not clear that business leaders and entrepreneurs need to be paying it much attention … or at least, any more attention than they were paying to the national debt before we broke through this admittedly ominous-sounding barrier.

“Debt isn’t like a reservoir that starts overflowing when it exceeds 100 percent of capacity,” wrote economics opinion columnist Peter Coy in The New York Times’ DealBook newsletter over the weekend. Indeed, in our country’s halls of power, it doesn’t seem like this incremental increase had much of an impact: As Coy notes, the Pentagon is currently pursuing a record-breaking budget increase amid tens of billions in spending on its war with Iran, while Senate Republicans are working to secure over $70 billion for an immigration enforcement package.

Even some budget hawks concede that this milestone, while striking, is more of an easy-to-market indication of how high the debt has risen, rather than an inherently pivotal turning point in the country’s financial outlook.

“Ninety-nine is a bad number; 101 is worse than 100,” Michael Peterson, CEO of the Peterson Foundation, told the Times. “We make a big deal out of 100 because it’s a round number.”

That’s not to say that founders and C-suite leaders shouldn’t be wary of the national debt. As the Peterson Foundation and the Committee for a Responsible Federal Budget noted, America hasn’t faced a debt-to-GDP ratio this steep since the end of the Second World War—and, the Times adds, it trended downward from there, with a strong economy, budget surpluses, and inflation helping to lower the ratio to less than 25 percent by the mid-1970s. 

These days, in contrast, the Congressional Budget Office predicts continually rising debt, reaching 175 percent of GDP over the next 30 years, the Times reports; the interest payments alone are already larger than the country’s entire defense budget.

“We don’t have any grownups in the room in Washington,” Boston University economist Laurence Kotlikoff told the newspaper. “Nobody picks it up and says, ‘You have a problem.’”

For entrepreneurs, then, the passage of this benchmark is both a statistically arbitrary bit of current events trivia—your business operations and bookkeeping won’t change day-to-day following this development—as well as an indication of a deeper, more systemic concern worth keeping an eye on in the long run.