President Obama’s economic policy has run smack into reality. No one believes that he can keep spending even to the massive levels he projects, or eventually lower the deficit, or persuade congress to switch from profligacy to prudence, or … well, you get the idea. Worse still, even if you believe all of these things and more, the deficits projected by the president are simply unsustainable, and would drive the combination of federal, state and local government debt to well over 100 percent in 2020 -- a level that most observers believe will stifle economic growth.
A new paper by Carmen Reinhart and Kenneth Rogoff, professors of economics at the University of Maryland and Harvard University respectively, covers the experience of 44 countries over 200 years and concludes, “Our main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes…. Seldom do countries simply ‘grow’ their way out of deep debt burdens.” If you are the worrying sort, add to these your answer to a question put by Larry Summers, now the president’s economic adviser but at the time free to speak his mind, “How long can the world’s biggest borrower remain the world’s biggest power?” Efforts to reach Mr. Summers to obtain his current answer to his question proved unavailing.
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