JUANA SUMMERS, HOST:
The federal debt topped $40 trillion yesterday - a record high. And unless something big changes, it is expected to keep climbing. Martha Gimbel says Americans may already be paying for it through higher interest rates on loans and credit cards. She's the executive director of Yale Budget Lab, and she joins me now. Welcome to the program.
MARTHA GIMBEL: Thank you so much for having me.
SUMMERS: So, Martha, you last wrote about the federal debt in an article for The Atlantic that came out back in June before it crossed this latest milestone. When you saw that it hit the 40 trillion mark, what did you think? What was your reaction?
GIMBEL: I mean, this is one of those things that I think, to people who don't follow this, feels like a big number. But for those of us who have been sitting in this, you know, the exact number doesn't really make a big difference here. It's more about the trajectory that we're on and whether or not we're doing anything to change that trajectory. Spoiler alert, we are not.
SUMMERS: I mean, when I think about $40 trillion, I mean, I can't even conceive of how much money that is. I mean, how alarmed should we really be about this? How should we think about this?
GIMBEL: Well, so I think there's a couple of things about the 40 trillion. One is, yes, it's just an almost impossible number to get around in your head. The second thing is that, as a number, actually doesn't tell you very much, right? Because the question is whether or not we can handle it, right? So the fact that we have borrowed, you know, with gross debt, 40 trillion is a very different proposition than, say, if you are Portugal and you've borrowed that amount of money, or you're Chile, right? We are a bigger country, we are more prosperous, etc. But the question is, you know, are we going to be able to keep paying for that? And is it stopping us from doing other things that we want to do?
SUMMERS: Can you just put this into, like, some real-life perspective for us? Like, what are some of the ways that this is showing up in people's budgets day to day? How does it impact just everyday Americans?
GIMBEL: Yeah. So one of the things that happens when the government is borrowing this much money is that it drives up interest rates, right? Investors think this is weird, and so then they ask the federal government to pay them more money in order to take on that debt. But then that means that the rest of us have to compete with treasury to get people to lend us money. And if they can get a higher rate from the Treasury Department, then we have to offer them a higher rate. And that means that we're facing higher borrowing costs when we want to take out a mortgage or we're dealing with a credit card or we're taking out a car loan.
SUMMERS: You point out a number of big pieces of legislation over the past decade that have grown the deficit - things like pandemic relief, tax cuts, big spending programs. But especially in a crisis, like, isn't some of that borrowing necessary? I guess I'm thinking about how you distinguish between debt that's worth taking in and debt that may be - I don't know - problematic.
GIMBEL: It's a really hard question because, also, one person's debt that's worth taking on is another person's problematic debt, right? I think one of the things that you have to think about is that we are increasingly in a different operating environment. The decision to deficit spend right now, when debt is this high and interest rates are this high, is very different, and the trade-offs are different, particularly because the economy is very strong, than that same decision was in, let's say, 2009, in the middle of the Great Recession.
And so, you know, economists get annoyed when people compare the federal government to a household, right? We're different in various ways. But in some ways, it's the same question, right? It's not that you're never going to take on debt as a household, but you need to think about whether or not that debt makes sense. And if you already have a lot of debt, it may not make sense to take on more.
SUMMERS: I mean, just thinking about it, the most obvious way for a government to pull in more money is taxes, which you make the argument for. But I guess I wonder, is it fair to expect people to get on board with raising taxes when so many of us are already adjusting household budgets for higher grocery and gas prices and just an increased cost of living?
GIMBEL: I mean, this is exactly the problem when, you know, you let yourself, as a government, get into these types of problems is that none of the solutions are appealing. That's why you're seeing, you know, these kind of struggles across the developed world right now. Many countries are dealing with elevated debt levels that are making markets itchy, and none of their solutions are particularly appealing. You can raise taxes or you can cut spending, and people don't like having their taxes raised...
SUMMERS: Right.
GIMBEL: ...And they don't like having the services they get cut.
SUMMERS: When we think about a way out of this, do you think there's any way in which we don't see middle- and lower-class Americans shouldering this economic stress on their own budgets?
GIMBEL: You know, I think people like to think that we can, you know, fully balance the budget on the backs of, you know, pick your favorite three billionaires here. And unfortunately, that's just not the case. There's certainly a lot of revenue that we can raise from, you know, people at the very top of the income and wealth distribution. But it's not an infinite amount of money. And I think it's really important to keep in mind we've had these huge tax cuts over the last few decades. Those have disproportionately gone to people at the top, but they haven't entirely gone to people at the top.
SUMMERS: OK.
GIMBEL: And so, you know, is there a way out of this where people like you and me don't suffer? No.
SUMMERS: That's pretty sobering to hear you say that.
GIMBEL: It's not my favorite talking point (laughter).
SUMMERS: So I guess, then, what is the solution, then? So, like, what are we to do then?
GIMBEL: I mean, I think there's a couple of things here. One, I think everyone has to stop lying to themselves. I think one of the things that you have seen increasingly in D.C. is this kind of wish casting that growth in the future will be fast enough that we can grow our way out of it, right? AI, in particular, is going to spur growth, and therefore, we won't have to make any hard decisions. And that is a really big bet to make, and you would have to see some pretty unprecedented rates of growth with relatively few disruptions associated with that growth for that to work.
And so I think part of it is, you know, similar to when, you know, you or I have spent too much or not earned enough. You have to sit down and figure out what you're going to do about it, and it's not going to be pleasant, but you also have to stop lying to yourself that there's an easy way out of this.
SUMMERS: We've been speaking with Martha Gimbel. She's the executive director and cofounder of The Budget Lab at Yale University. Martha, thanks.
GIMBEL: Thank you for having me. Transcript provided by NPR, Copyright NPR.
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