Reflections on National Debt and Economic Growth

My father-in-law, who came from Albania, was a true American patriot. During the mid-20th century, he spent decades as a CIA operative, subtly combating the rise of communism in Europe and Southeast Asia.

When he passed away at 92, he expressed concerns about America’s future, noting, “I am glad that I cannot see the end.” His sense of bittersweet pessimism resonated with me even before the country was on the verge of World War II. You can keep track of the growing national debt here.

This “Clock” provides real-time updates on the government’s escalating national debt, which is currently around $36.9 trillion.

Yet, the troubling trend of overspending over the past few decades, under administrations from both parties, has been overshadowed by the U.S. GDP—it’s estimated to have exceeded $37 trillion in 2024, with a GDP of $29.2 trillion. This aligns with Treasury Secretary Scott Bescent’s recent perspective that if the economy expands faster than the debt, we might stabilize.

However, the Congressional Budget Office suggests that adopting a $3.3 trillion increase in national debt supports Bescent’s idea of “getting out of debt.”

This optimism seems misplaced when viewed through historical and factual lenses. The national debt has surpassed GDP since 2013, with the current debt-to-GDP ratio at 123%. To lower this hefty ratio would require an economic boom akin to what we haven’t seen since the decades post-World War II.

In 1946, after five years of war, we reached a staggering debt-to-GDP ratio of 119%. If that upside-down ratio persists, the likelihood of the U.S. maintaining its superpower status diminishes.

Fortunately, America managed to navigate through debt by leveraging sustained post-war growth. With a wave of optimism, the nation witnessed a baby boom that spurred an enormous suburban expansion, the development of national highways, and significant technological advancements driven by wartime demand.

Until around 1966, the decades that followed saw the debt-to-GDP ratio decline to around 40%. After the Vietnam War, the U.S. hit a low of 31% in 1974, a figure that would not be seen again until 1981.

Since then, the debt-to-GDP ratio has kept climbing. Is anyone genuinely convinced that Trump’s notion of a “Golden Age of America” could achieve the explosive growth needed to drop the debt-to-GDP ratio from 123% into the double digits?

Bescent’s “We Can Get Out of Debt” appears overly optimistic when considering several realities—beginning with Trump’s trade tensions, persistent inflation, an aging population, ongoing global challenges, natural disasters, supply chain disruptions, unpredictable AI impacts, and the brain drain from reduced research funding during Trump’s tenure.

Compounding this, the deficit of highly skilled tech employees and the uncertainties surrounding immigration policies also hinder growth while government spending remains unverified.

It’s not surprising that the World Bank recently altered its economic forecasts. While the U.S. economy is predicted to expand by 2.8% in 2024, the outlook for 2025 was downgraded from 1.8% to 1.4%. It seems Trump’s so-called golden age might just be an illusion. Projections suggest that by 2029, the debt-to-GDP ratio could reach 140% according to the debt clock’s “Time Machine.”

Interestingly, many Americans are unaware that Medicaid and Medicare represent the largest chunks of federal spending, totaling around $1.7 trillion, followed closely by Social Security at $1.5 trillion. While cuts to these vital programs are likely—and painful—public tolerance for such hardships may lessen over time. But that’s a concern for the future.

On the revenue side, the debt clock records about $5.1 trillion. This amount is relatively low compared to the national debt of $36.9 trillion. The rapid rise in debt has pushed interest payments to $1.03 trillion, now the third-largest item in the federal budget. It’s even surpassing defense spending, which stands at $907.7 billion.

Recently, a paper by Hoover Ferguson, a fellow at the Hoover Institution, illuminated an intriguing concept. His work titled “Ferguson’s Law: Debt Services, Military Expenditures, and the Financial Limits of Power” posits that the burden of debt diverts resources needed for national security. He cites numerous historical examples to support his thesis.

For those optimistic about America’s prospects, Ferguson pointed out that while hope exists, it doesn’t change the troubling trend where more resources are allocated to debt repayment than to defense.

The debt crisis is indeed worsening, compounded by the high costs of wars and the potential for deeper involvement in Middle Eastern conflicts. Our adversaries are well aware of America’s economic weaknesses. Increased defense spending will likely lead to more borrowing, which, in accordance with Ferguson’s law, could undermine America’s capacity to maintain its global influence.

Proposals for cutting the largest federal budget items have sparked considerable backlash, with critics asserting that such cuts would harm people. Senator Joni Ernst from Iowa responded bluntly, saying, “Well, we’re all going to die.”

In contrast to my father-in-law’s experiences, many of us today may be around to witness the unfolding of these challenges.