Paying for Abundance
[2025 ended as a year many would just as soon forget, unless the U.S. stock market was your single benchmark. As the backlog of critical needs was building, I followed a series of authors in search of course corrections. One chain of thought that received some traction came to be known as the Abundance Movement. Starting with a book titled Abundance, by Ezra Klein and Derek Thompson, I followed how other authors responded to the book, and what history and current events had to say relevant to the debate. The result is a series of eight essays that will be posted to Fifty Year Perspective weekly through January and February. Here the seventh of eight parts.]
The consideration of a new decision-making process in the previous blog posts raises the question of financing. For a country with a growing debt currently standing at $37 trillion, and interest payments on the debt comprising 13% of the budget, a major push into infrastructure and public works is hard to imagine. That’s a situation shared with many of the world’s largest economies.
The October 18, 2025, issue of The Economist included a special report titled, “Governments Going Broke” Japan, Italy and France all have government debt of more than 100% of their GDP. According to the United States Federal Reserve the U.S. debt as of mid-2025 was 118% of GDP. The article finds little appetite for belt-tightening in the U.S. and foresees little chance for a windfall from new tariffs given the extension of the 2017 tax cuts.
Aging population, defense spending and costs of climate transition are adding to future costs for the G7 group of rich economies. Half of outstanding debt among those countries was issued at interest rates less than 2%. “American debt worth a quarter of the country’s GDP,” the report notes,” will come due between 2025 and 2027. Reissuing it at 2024 yields would increase the interest rate paid by about two percentage points.”
The report examines four choices the U.S. has for reducing that ratio of debt to GDP: Austerity; increasing output; raising taxes; or inflating away the debt. A fifth option is default, with the government declaring itself unable to pay its debts with all the consequences that would ensue.
Austerity requires significantly cutting government expenditures – for example, defense, social programs, infrastructure spending, federal employment, R&D. Opposition from affected sectors of the population are certain. But along with being politically unacceptable, research indicates that cuts in spending simultaneously reduce GDP growth.
Increasing output can reduce the debt-to-GDP ratio as well as shrinking the debt. Proposals for increasing output lean toward either increasing immigration, or emphasizing productivity growth through tax cuts, deregulation or technological advances. An immigrant arriving with a graduate degree would deliver a net fiscal benefit, but little benefit would accrue from an immigrant arriving without a high school diploma. Since 2020 immigrants arriving in the U.S. have primarily been lower-skilled migrants or asylum seekers. As for productivity gains, the Congressional Budget Office estimates that a half percentage increase over the CBO forecast would reduce the debt-to-GDP ratio in 2055 from 156% to 113%. That will not solve the problem anytime soon.
Among the G7 countries, the U.S. has the lowest ratio of government revenue to GDP, 31.5%. France has the highest ratio among the G7 at 51.9%. U.S. taxes are low not only by international standards, but by comparison to historical trends since World War II. The federal income tax rate for the highest-income families was 91% in 1950 and 1960, 70% in 1970 and 1980. It has been approximately 37% since 2018. As The Economist reports, “the current Republican Party will not back any big tax rise without being forced to do so by a financial crisis.” (Emphasis added.)
When inflation occurs the value of dollars decreases. By printing (actually creating) money, the government intentionally causes inflation by decreasing the real value of its outstanding debt. That also decreases the value of the dollars people spend on purchases and the dollars they have in savings, not a popular path for government to take. The article calls inflation the most likely to occur. That would be unfortunate.
Members of both political parties acknowledge, privately, that a financial crisis is inevitable. If inflation occurs, the Federal Reserve will likely raise interest rates to slow the economy; that is the opposite of what the Fed is being encouraged to do now. In such an event, the abundance agenda is unlikely to succeed.