Few economic studies have received as much attention as Carmen Reinhart and Kenneth Rogoff’s “Growth in a Time of Debt.” The attention is well-deserved. Reinhart and Rogoff have painstakingly assembled data on debt from over 40 countries covering 200 years, making it the largest dataset of its kind. They then examine the way debt impacts economic growth and find that as nations’ debt-to-GDP ratios go from 30 to 90 percent, their growth rates decline markedly. In the best case, their real average annual growth rates decline by about 1 percentage point; in the worst case, the growth rate is halved.
To put this in perspective, if in 1975, the US growth rate had slowed by 1 percentage point, our current economy would be about 30 percent smaller than it actually is. And if our growth rate had been cut in half, then the current economy would be nearly 43 percent smaller than it actually is. In other words, an entire generation’s worth of economic growth would not have occurred.
Absent policy change, the CBO is projected that federal debt held by the public will be 90 percent of GDP within 7 years.
But what about the states? They, too, face a grim fiscal future. Harvard economist Jeffrey Miron recently examined this question for the Mercatus Center. In it, he concludes:
[S]tate government finances are not on a stable path; if spending patterns continue to follow those of recent decades, the ratio of state debt to output will increase without bound.
Miron then calculates the year at which each state’s debt will exceed the fateful 90 percent mark identified by Reinhart and Rogoff. To help visualize Miron’s work, I have created a short YouTube video that shows the states whose debt levels exceed 90 percent of state GDP at certain time periods. Absent policy change, debt in every state of the union will be greater than 90 percent by 2070. But many of us don’t have to wait that long. In a number of states, the day of reckoning will come much sooner.
Read Miron’s entire, informative, analysis here.