Unprecedented Debt

Conn Carroll / January 29, 2009

In the mid-1960s, Democratic President Lyndon Johnson created a blue-ribbon commission of civic leaders who recommended chartering a center for independent nonpartisan analysis. The Urban Institute became that center. Urban Institute senior fellow Rudolph Penner told the New York Times yesterday:

Many say we risk providing too little rather than too much stimulus. Don’t bet on it. The amount of public debt created will not only break post World War II records, but shatter them. The increase this year relative to G.D.P. will be more than twice the previous record set in 1983 when President Reagan was accused of running irresponsible deficits.

There is a risk of raising interest rates and adding to the turmoil in international capital markets. Even if that does not happen, we’ll certainly be adding enormously to the interest bill facing future tax payers.

It is also hard to imagine how federal, state, and local bureaucracies are going to manage huge percentage increases in specific budgets, especially when they are expected to spend the money quickly. Much waste seems inevitable. Moreover, will we have the guts to impose similarly large percentage reductions in budgets when the stimulus is supposed to end in two years? Or will we simply add to a long-term budget problem that is already horrendous?