Deficit hawks need to take a deep breath and stop squawking. The national debt is in bad shape, true. And it's going to get worse, thanks to TARP and the stimulus bill and other baseline spending. But, for the next two years at least, the national debt will remain within its historic boundaries. David Leonhardt, as always, has the numbers:
Surprisingly, the debt that the federal government has already accumulated doesn't present much of a problem. It is equal to about $6 trillion, or 40 percent of G.D.P., a level that is slightly lower than the average of the past six decades. The bailout, the stimulus and the rest of the deficits over the next two years will probably add about 15 percent of G.D.P. to the debt. That will take debt to almost 60 percent, which is above its long-term average but well below the levels of the 1950s.
America survived the debt that World War II produced (at 120 percent of GDP) and the debt in the 1950s. We grew our way out of it. All things being equal, with the right policies the United States can grow its way out of its current debt as well. Except all things aren't exactly equal, as Leonhardt points out:
[T]he unfinanced parts of Medicare, the spending that the government has promised over and above the taxes it will collect in the coming decades requires another decimal place. They are equal to more than 200 percent of current G.D.P.
Not good. James Capretta writes up a possible Medicare reform here. President Obama has pledged to reform entitlements, which really do pose a long-term threat to American solvency. The trick is to finance the welfare state in a way that allows the maximum possible amount of individual liberty and economic growth. Is Obama up to the task?