The Congressional Budget Office’s latest Monthly Budget Review for October and November 2023 reveals an alarming trend: Despite a 19 percent increase in revenues, amounting to $108 billion, the federal budget deficit has ballooned to $383 billion, $47 billion more than the same period in the previous fiscal year. This surge is attributed to expenditures outpacing revenues by $155 billion, a 17 percent hike.

A primary factor in this fiscal imbalance is the escalating cost of interest payments. In the first two months of fiscal year 2024, these payments have soared by 65 percent compared to the previous year (CBO, Table 3, p. 4). If you look at interest on the debt as a share of GDP, it has reached 3 percent. If, as I suspect, interest rates don’t go back to their previous low levels, the burden of these payments is set to intensify, a situation reminiscent of the early ’90s, albeit with our current debt levels posing a far greater challenge.

This situation is, in part, a consequence of the misguided belief that increasing national debt was sustainable while interest rates remained low — a cornerstone of the r-g theory. Jack Salmon and I wrote about our concerns with the theory back in early 2022. Of course, the problem with this theory was never that we couldn’t afford the debt back when interest rates were low. It was instead that we would get in trouble faster if rates were going up and our debt was enormous, as I explain here. That’s especially the case when most of the debt is relative short-term as is ours.

But don’t worry, now that r-g is hard to use as an argument for letting the debt grow, economists and pundits are going to come up with new metrics. My best guess is this real interest payments as a share of GDP measure that Treasury Secretary Janet Yellen and others have been using. You can even find it included in the budget (see Table S-1 on p. 135 of the budget document).

Never mind that this measure was lower than the level we are told we should worry about (2 percent) in 2021 when we were hit with a large burst of inflation, which has led to this rise in interest rates.

But maybe that’s the idea; we shouldn’t worry about the debt because it will be made sustainable by inflating it away. It wouldn’t be unusual as inflation is one of the ways governments around the world and across history have reduced their debt burdens.

Yet, this does little to address the core issue: The absence of a serious conversation in Congress about spending reforms and long-term debt sustainability. It’s perplexing that these critical aspects remain on the periphery of fiscal policy debates.