This week on Facing the Future, host Bob Bixby spoke with Ben Ritz, Vice President of Policy Development at the Progressive Policy Institute and Director of the PPI Center for America’s Future, about the rising national debt and its implications for affordability in the United States. Their conversation delved into the immediate and long-term effects of the federal debt and the policy choices shaping the economic landscape.
Ritz explained that excessive debt has both short-term and long-term consequences for affordability. “In the short term,” he said, “each year that the government runs a deficit it is pumping more money into the economy than it is taking out. When we have an economy that is depressed, when it’s not living up to its full potential, that can be a good thing. But if our economy is operating at full capacity and most people who have jobs want them, then when you’re putting more money into the economy each year, that’s just more money competing for a fixed pool of goods and services and workers who can provide them. That, of course, leads to higher prices. The way the Fed responds is by raising interest rates, because that is a way to take excess money out of the economy.”
As a practical example, Ritz noted, “We have had the Fed raise interest rates quite a lot since 2021. That means that we are no longer experiencing the inflation quite as badly as we did in the immediate aftermath of COVID, but borrowing costs are much higher. So if you are going to buy a car, it might not make a big difference to you from an affordability perspective whether your monthly payment is high because the base price of the car is high, or because the interest rate on your auto loan is high. Either way, you’re paying more, and so that is filtering into higher costs for consumers as well.”
Over the long-term, excessive debt becomes an affordability issue because it slows investment, economic growth and wages. Ritz explains, “The important thing about the debt long-term is that we move from the demand side to the supply side effects. On the supply side, over time, debt crowds out investments that have the potential to grow our economy.on the public and the private side. On the private side, higher interest rates mean that the private sector doesn’t have as much access to capital to pursue as many investment projects. We’ve actually seen a great microcosm of this in the construction industry. We had a lot of housing that was starting to get built in the early 2020s that just didn’t come to fruition because of rising interest rates.
“Then there’s also the public crowd out,” Ritz continued. “The federal government invests in key public investments that the private sector can’t provide, whether that’s basic scientific research or infrastructure, education, public education, and the more that it has to spend on interest payments, the less it has available for those public investments. So right now, we’re spending about a trillion dollars a year on interest on the debt. It’s about 3% of GDP higher than it’s been at any point in history, and it’s only going to grow. Meanwhile, public investment spending is falling as a percent of GDP, and as one grows, the other is likely to keep shrinking.”
Ritz was skeptical of proposals from both parties to address affordability by just giving people more money to deal with higher costs, which he said “just ends up driving the problem up in a different way.
Focusing on President Trump’s idea of sending $5,000 checks to every American adult, Ritz asked “Even if Republicans aren’t going to do the $5,000 check, what is their answer on affordability? It’s that we gave everybody a big tax cut. And that’s the same thing as pumping it into the economy through an increased spending program or stimulus check. It’s still more money going to the economy and not actually dealing with the problem.”
The looming risk of a debt spiral was a major concern throughout the interview. Ritz explained the dangerous feedback loop where growing debt leads to higher interest payments, which in turn increase deficits and add to the debt, potentially driving interest rates higher as markets become wary. “You very quickly enter a spiral situation, and I don’t think we’re that far away from it,” he warned.
Ritz also challenged the optimistic notion that economic growth alone could resolve the debt problem. He pointed out demographic headwinds, such as an aging population, that slow growth and limit the ability to “grow our way out” of debt. While technological advances like AI offer hope for productivity gains, he cautioned that these boosts tend to be short-term and insufficient to offset structural fiscal challenges.
On the topic of policy responses, Ritz expressed skepticism about certain administration initiatives, including the Treasury’s efforts to buy back debt to lower interest costs, suggesting these measures had limited success. He underscored the need for supply-side investments to truly address affordability and fiscal sustainability, noting that expansions in infrastructure and productivity-enhancing investments are essential.
Hear more on Facing the Future. Concord Coalition Senior Advisor Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
