Harvard economist Kenneth Rogoff keeps interfering in the “debt is not a problem” daydream:
The idea that one should just ignore all these problems and apply crude Keynesian stimulus is a dangerous one. It matters a great deal how the government taxes and spends, not just how much. The US debt level is a constraint. A growing number of empirical studies, including my own joint work with Carmen Reinhart, suggest that the US has already reached a debt level that has been associated with slower growth in advanced countries. The fact interest rates are low today does not necessarily mean the US is an exception to this rule – take one look at stagnant Japan’s rates. The dollar’s reserve currency status buys America more room, but how much and for how long? A high debt burden is a problem precisely because it reduces a country’s capacity to deal with future shocks.
In this FT piece, Rogoff makes another good point: It’s one thing to cut defense spending as a way of reducing debt. But it’s quite another to de facto shift that spending to expanding the welfare state and leave the debt problem to metastasize. “At the very least, if military expenditures continue to fall, it becomes more important to have the fiscal capacity to ramp them up in response to new threats.”