Countries with high rates of public debt can still maintain economic growth, contrary to the argument of Republican presidential candidate Jon Huntsman.
The BGOV Barometer shows that some nations with debt levels exceeding 70 percent of their gross domestic product, the threshold cited by Huntsman, continue to expand, among them Germany and France.
“I’d argue that 70 percent debt-to-GDP is a national security problem, because at some point, you just don’t grow any more when your debt becomes that,” Huntsman said at a Nov. 22 debate with other GOP candidates. “I mean, look at Japan. They’re in their third decade of lost growth. Look at Greece, look at Italy.”
In the U.S., the world’s largest economy, marketable debt held by the public is equivalent to 63 percent of GDP. Counting government securities held by other federal agencies, the total approaches 100 percent of GDP. The U.S. economy grew 1.5 percent in the third quarter from the same period last year.
Japan, whose 200 percent debt-to-GDP ratio is the most of any developed country, showed no growth in the third quarter. Greece, at 143 percent, shrank 5.2 percent over the same period. In addition to the countries mentioned by Huntsman, Portugal is saddled with 93 percent debt-to-GDP and its economy contracted 1.7 percent over the 12 months through September.
Continued growth in other nations indicates it takes more than high debt loads to jeopardize expansions. Germany, Europe’s largest economy, has debt equaling 83 percent of GDP and expanded 2.6 percent in the year to September. France, with 82 percent debt to GDP, grew 1.6 percent and Belgium, with 100 percent debt to GDP, expanded 1.8 percent. Economies in the U.K. and Austria are also expanding alongside debt that exceeds 70 percent of annual output.
Thresholds in Dispute
Some economists dispute the validity of thresholds such as the one put forth by Huntsman.
“The truth of the matter is that you cannot put all countries together at all times,” said Liliana Rojas-Suarez, a senior fellow at the Center for Global Development in Washington and former chief Latin America economist for Deutsche Bank AG. “There is not a formula.”
Robert Shiller, co-creator of the S&P/Case-Shiller index of home values and a professor at Yale University, wrote in July that “we should worry less about debt ratios and thresholds, and more about our inability to see these indicators for the artificial -- and often irrelevant -- constructs that they are.”
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