Rates have been dropping in the US and throughout the developed world for three decades and now are negative when inflation is taken into account. Interest rates have been falling for years. In their new paper, Furman and Summers make four key points: That, in turn, will set off a familiar debate in Washington: Even as President-elect Biden begins to turn trillions of dollars of campaign promises into new spending on infrastructure, health care, and aid to families, Republicans are expressing a renewed concern about rising federal debt. It comes just as the nation faces debt levels not seen since World War II and Congress is debating whether to spend another $1 trillion for COVID-19 related economic relief.Īnd it comes, of course, less than two months before the nation will swear in a Democratic president. But the timing of their new paper is striking. Instead of focusing on the risks of government debt crowding out private investment, Furman and Summers argue, policymakers should worry about the risks of insufficient public investment in infrastructure, education, and low-income families.įurman and Summers have been making this case for a while. Jason Furman, a former top economic adviser to President Obama, and former Treasury Secretary Larry Summers say that historically and persistently low interest rates require policymakers and economists to reconsider their thinking about the national debt. Now, in an important new paper, two highly-influential Democratic economists argue that theory is badly outdated. For decades, conventional wisdom said that high levels of federal debt created a significant drag on the economy by diverting money that could more productively be used for business investment to purchasing government bonds.

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