No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Fourteen: Decision-making in Democracy: Public Choice 347 In Figure 14.7 , we can follow the growth of debt over time. We will usually scale our discussion of debt in terms of gross domestic product since that reflects our ability to pay off the debt and allows meaningful comparisons across time. The U.S. debt more than doubled as a percentage of GDP during World War II. After the war, the U.S. was able to reduce this debt burden by a combination of economic growth, budget surpluses, and inflation (which reduced the real interest burden of the debt at the expense of savers who purchased U.S. bonds). During the last 30 years, however, the debt has risen remarkably with a tremendous explosion since the 2008 financial crisis. This is clearly evident in Figure 14.8 . Figure 14.7, Debt as a % of GDP. We are rapidly approaching the all time high of debt/GDP seen at the end of WWII. Data last updated on 26 Mar 2020. Source: https://fred.stlouisfed.org/series/GFDGDPA188S Figure 14.8, Federal Surplus or Deficit. Source: http://research.stlouisfed.org/fred2/graph/?graph_id=122300&category_id=0