Deficit Dove Says The National Debt Matters More Than It Used To

This week on Facing the Future, host Bob Bixby spoke with Bobby Kogan, Senior Director of Federal Budget Policy at the Center for American Progress (CAP), about the growing national debt and why he is increasingly concerned about it. Kogan co-authored a recent CAP paper titled Why the National Debt Matters More Than It Used To, and Why We Should Not Count on AI to Fix the Problem with Jared Bernstein, a former chair of the Council of Economic Advisors under President Joe Biden.

Kogan noted that he and Bernstein did not make their reputations as “debt hawks.” In fact, “we were famous deficit and debt doves, and I still consider myself a dove,” he said. “But basically the  underlying situation changed.” In particular, he now worries about the trajectory of the fiscal situation. “It is just not true,” he remarked, “that you can look at our current fiscal situation and feel the same way about it as you did a decade ago.”  

Two things that have fundamentally changed are higher primary deficits (government spending on programs excluding interest costs) and higher interest rates. “if you’re looking at debt stability,” Kogan said, “your most important factor is primary deficit, so if your most important factor has gotten worse, you should care more than you used to. And then your second most important factor is the difference between the growth rate of the economy (G) and the interest rate on debt (R).”

Kogan explained that the U.S. has had the advantage of economic growth outpacing the cost of borrowing, which kept high debt levels manageable. He warned, however, that ”As soon as R becomes bigger than G, which is projected to happen within just 3 years… the high debt makes it worse all of a sudden. And then the more that the R minus G gets worse, the more the high debt amplifies that. That’s how you create a debt spiral that is really, really, really difficult to break out of. I still consider myself a dove. But I can say it 50 times, the situation is just totally different from how it was a decade ago. 

Kogan also offered a technical perspective on measuring the fiscal challenge. He explained that the fiscal gap—the adjustment needed to stabilize debt relative to GDP—is calculated as the net present value of primary deficits divided by the net present value of GDP over a specified horizon, usually 30 years. Using this framework, Kogan and his team estimated that the United States would need to reduce deficits by about 2.6% of GDP to stabilize the debt trajectory. 

“Now, 2.6% of GDP doesn’t mean anything to anyone, and I think we need to contextualize that,” Kogan said. “Two point six percent of GDP is really big. It is a $10.5 trillion deficit reduction package over the decade but I also need to contextualize that. In the Biden administration, Democrats tried to do the Build Back Better agenda, which was where they were going to fundamentally transform the United States into looking a lot more like Europe. Other than healthcare, it would do childcare, do pre-K, do community college, all sorts of things. And we in the White House handed Congress a $4 trillion spending package and a $4 trillion tax package. And the House Democrats looked at that, and they decided they could only do $2 trillion worth of tax increases. So, if you take the net total tax increases that House Democrats felt comfortable doing, that is literally one-fifth of what’s needed to solve the problem.

 

“Similarly,” he continued, “in the big, beautiful bill, Republicans did historic cuts to the social safety net. The biggest cuts to Medicaid in history, the biggest cuts to food stamps in history. The biggest cuts to student loans in history. You take all of their historic cuts to the social safety net and that is also around $2 trillion. So if you took the combined deficit reduction that Democrats felt that they could do, about $2 trillion, you took the combined deficit reduction that Republicans thought they could do, and you stick them together, you’re still less than halfway what’s needed to stabilize the debt to GDP. That’s kind of how big the situation is. And it’s just much worse than it used to be. About a decade ago, we were estimating the fiscal gap at about 1.5% of GDP.”

The conversation touched on the real-world consequences of ignoring or downplaying debt concerns. Kogan warned about market reactions where a sudden loss of confidence triggers severe economic costs. He pointed out that rising debt levels have already made everyday borrowing more expensive: “Car loans right now are more expensive than they otherwise would have been because of debt increases.” Mortgage rates and other credit costs have similarly been impacted, underscoring that debt is not a distant or abstract problem but one that affects people’s wallets.

Despite these challenges, Kogan stressed the importance of responsible fiscal policy. He acknowledged that deficit reduction is necessary but cautioned that “responsible deficit reduction is better than nothing. Irresponsible deficit reduction is worse than nothing.” Cuts that harm vulnerable populations by reducing healthcare, food assistance, or housing support make the country worse off, even if they lower debt numbers. The goal, he said, should be to balance fiscal responsibility with protecting Americans who rely on government support.

Kogan also touched on the political difficulties surrounding debt reduction. He lamented the lack of congressional responsiveness to fiscal warnings, contrasting today’s inaction with past periods when bipartisan efforts successfully addressed deficits. “Now, Congress doesn’t respond. Or if they do care, they care more about other things,” he observed. “ I don’t know how you make Congress care, but unless Congress starts caring. then it’s very clear we’re never going to fix the problem, because people have been yelling since 2001, since the Bush tax cuts came in, okay, we now have a problem, and it hasn’t… hasn’t gotten Congress to do anything different, and if anything, we’ve gone even harder in the opposite direction.”

The interview explored the role of artificial intelligence (AI) in potentially boosting economic growth and alleviating debt pressures. While acknowledging the enthusiasm around AI’s promise, Kogan urged caution. He argued that for AI to meaningfully help the fiscal situation, it would need to sustain continuous improvements in productivity over a long period. “It needs to not just increase the growth rate. in the current term, but it needs to keep increasing the growth rate in the future. That is to say, you need to believe that it’s not just going to be a one-time boost to how efficient that I am and that other workers are, but you need to believe that it keeps getting more and more and more efficient. That’s not impossible, but it is very unlikely.” He compared AI’s impact to the internet’s productivity boost, which lasted roughly 10 to 15 years before leveling off. Therefore, he concluded that while AI might provide a one-time boost, counting on it to solve the debt problem was unrealistic.

In closing, Kogan urged urgency in addressing the debt issue, noting that the longer policymakers delay, the harder and more painful the eventual corrections will be.