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The Economic Perspective: “New Evidence on the Cost of Government Debt”

I’m Mary Walden, with economist MW, welcoming you to the economic perspective.   Today’s program looks at new evidence on the cost of government debt.  Mike, the federal government is continuing to borrow money at great amounts.   This year’s borrowing will be over $1 trillion.   Do we yet see any costs of this borrowing spree?

  • Long running question of economists
  • Two of my colleagues recently updated their analysis of what such borrowing costs the economy
  • First, they don’t see any reason to fear a default on federal debt – government has capacity to make payments
  • Yet cost is more subtle
  • Find that the kind of borrowing occurring in recent decades has reduced annual growth rates of the economy by almost 1% point
  • Big deal – difference between historical 3% rate and 2% rate
  • Reason – takes away from more productive investments
  • But tradeoff – much of the borrowing is to keep people healthier, especially in later life
  • I’m MW

And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics.