Understanding the Current Economy, Debt, and a Path Forward
This week on Facing the Future, economist Jason Furman, former chairman of the Council of Economic Advisors under President Obama and a professor at Harvard, shared his perspectives on the current economic landscape, inflation, the impact of geopolitical events on energy prices, and the pressing issue of the U.S. debt and budget deficits. Concord Coalition Policy Director Bob Zahradnik also joined the conversation to discuss recent developments on Capitol Hill.
Economic Outlook: Stability Amidst Challenges
Furman began with a brief overview of the latest comprehensive economic data. “The economy has basically been pretty similar to what it was in 2024,” he noted, highlighting that the unemployment rate has remained in the low fours, and GDP growth has held steady at a pace near 2 percent. Despite a recent slowdown in job growth, Furman explained this isn’t necessarily alarming because “we just don’t need as many jobs as we used to need in order to keep the unemployment rate from rising.”
However, inflation remains a sticking point. Furman described it as “disappointing” that inflation has been somewhat persistent, settling at close to 3%, slightly above the Federal Reserve’s target of 2%. He emphasized the transitory nature of some inflation drivers, such as rising gasoline prices due to geopolitical tensions. “Whenever we’ve seen gasoline prices go up in the past, they either level off… or they fall back down, in which case it helps bring your inflation rate down,” he explained.
Geopolitical Shocks and Energy Prices
One of the major concerns discussed was the disruption in oil production caused by tensions in the Middle East, particularly the closure of the Strait of Hormuz, through which a significant portion of global oil supply passes. Interestingly, despite this being the biggest quantity disruption ever, oil prices have hovered around $100 a barrel, not reaching the extreme highs of previous crises. Furman noted the uncertainty ahead: “If this closure of the Strait continues for another month… prices might go up to $150 a barrel. If everything is settled this week… prices will come back down again.”
Yet, the impact of these oil price changes is tempered by the evolved U.S. economy. “We use a lot less oil than we did back then [the 1970s] for a given amount of our economy,” Furman said. The U.S. is now the world’s largest oil producer and a net exporter, which provides some insulation against global price shocks. This shift reflects decades of adaptation since the oil crises of the 1970s.
Budgetary Concerns and Debt Realities
Turning to the budgetary implications of ongoing geopolitical events, Furman estimates that the U.S. is spending about a billion dollars a day related to these conflicts, with the President requesting around $200 billion in supplemental funding. While Congress may hesitate to approve the full amount, Furman stressed the importance of weighing costs against outcomes. “If you thought this was going to buy us a peaceful and better world, I think it’s a reasonable price to pay,” he says. Conversely, if it leads to more chaos, the costs only compound existing problems.
Furman then addressed the broader fiscal situation, highlighting the ongoing challenges posed by deficits and debt. He remarked, “It’s adding to interest rates, it’s adding to mortgage rates, we are all paying a cost for our deficits and debt already. It’s not a when do we pay the cost? It’s how much?” Despite this, he does not see an immediate catastrophic emergency but warns that the current trajectory is unsustainable.
He outlined possible extreme outcomes if the debt situation is not addressed: defaulting on debt, inflating it away through high inflation, or hoping for strong economic growth to outpace the debt. “I think there’s a 1 in 10 chance… maybe even 2 in 10 chance that we grow out of this problem and it just goes away on its own. But I certainly wouldn’t recommend anyone make policy based on the best-case scenario,” Furman cautions.
The Path Forward: Fiscal Responsibility and Growth
Furman emphasizes that the key to managing debt isn’t necessarily balancing the budget every year but ensuring that debt shrinks relative to the size of the economy. He points to the post-World War II period when the U.S. had enormous debt but grew its economy so much that the debt became manageable: “That’s what we need to do now… we can run a deficit, we just can’t run one that’s nearly as big as what we ran in… the last year under Biden, or the first year, under Trump.”
Addressing deficit reduction, Furman is realistic about the limits of simple solutions. Cutting spending on poor populations alone won’t suffice. He recalls bipartisan efforts in the 1990s that successfully reduced deficits by about 2.5% of GDP, suggesting such measures are possible but require broad political will.
He also supports the idea of a fiscal commission to develop solutions, despite past failures of similar efforts. “Most of them have failed in the past, but… most everything has failed in the past, and I don’t view that as an argument against it. I think it is worth a try.”
Why Debt Matters to You
For many, the national debt can feel abstract or distant. Furman made it personal: “You’re paying a higher mortgage rate right now because the government is borrowing so much money, it’s driving up the cost of borrowing. You maybe have less employment prospects because there’s a business that wasn’t able to invest and grow because of this. And your savings are at greater risk than they need to be.”
In sum, Furman paints a complex picture of an economy navigating persistent inflation, geopolitical shocks, and fiscal challenges. His message is clear: while the situation is serious, it is manageable with prudent policy choices, economic growth, and a willingness to face difficult fiscal decisions. As the nation looks ahead, understanding these dynamics and their personal impacts is crucial for informed public discourse and policymaking.
Deficit Goals, Bipartisan Momentum, and the Need for a Fiscal Commission
Concord Coalition Policy Director Bob Zahradnik joined the discussion to outline the challenges facing the federal deficit and the policy steps needed to address it. He stressed the value of setting realistic but ambitious goals, noting that cutting the deficit in half over five years would still require major effort but remains achievable. He pointed to growing bipartisan interest in Congress, where both the House and Senate have introduced resolutions aiming to reduce the deficit to 3 percent of GDP. Zahradnik called this an encouraging sign of renewed fiscal focus.
He also discussed the potential role of a fiscal commission. While acknowledging that commissions often fall short, he noted that no other approach has succeeded in tackling difficult issues such as Social Security, Medicare, and tax reform. A commission, he argued, could at least create a structured path forward.
The conversation concluded with the immediate effects of the partial government shutdown, including disruptions at the Department of Homeland Security and airport security checkpoints. Zahradnik observed that the public frustration created by these delays may increase pressure on lawmakers to resolve the budget impasse quickly.
