The Wall Street Journal: The Debt Question Facing Janet Yellen: How Much Is Too Much?

Article by Kate Davidson and Jon Hilsenrath in The Wall Street Journal

A big question hangs over Janet Yellen this week at her confirmation hearing to become U.S. Treasury secretary: How much debt is too much?

In the past four years, U.S. government debt held by the public has increased by $7 trillion to $21.6 trillion

President-elect Joe Biden has committed to a spending program that could add trillions more in the year ahead. At 100.1% of gross domestic product, the debt already exceeds the annual output of the economy, putting the U.S. in company with economies including Greece, Italy and Japan.

When Ms. Yellen served in the Clinton administration as Chairwoman of the White House Council of Economic Advisers, she was among those who pushed for a balanced budget. Today, she has joined, cautiously, an emerging consensus concentrated on the left that more short-term borrowing is needed to help the economy, even without concrete plans to pay it back. Central to the view is the expectation that interest rates will remain low for the foreseeable future, making it more affordable to finance the borrowing.

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The Biden administration will now contend with progressives who want even more spending. 

Ms. Yellen, who will be a top economic adviser to Mr. Biden, is scheduled to testify Tuesday before the Senate Finance Committee, which will vote on her nomination. She served as top White House economist in the 1990s and Federal Reserve chairwoman in the 2010s.

Ms. Yellen would be managing the nation’s debt when the economic consensus has flipped.

Ms. Yellen will tell lawmakers Tuesday that she and Mr. Biden appreciate the scale of the country’s debt burden, according to a copy of her prepared remarks reviewed by The Wall Street Journal. “But right now, with interest rates at historic lows, the smartest thing we can do is act big,” she plans to say.

Mr. Biden is embracing the view, as well. On Thursday, he proposed a $1.9 trillion aid package that includes $1,400 stimulus payments to individuals, expanded jobless benefits and paid work leave, aid for schools and hard-hit small businesses and a national vaccination program. Mr. Biden hopes it will be the first in a two-step program, with the second to focus on longer-term investments, such as in green energy and infrastructure.

Unaddressed are the twin questions of whether there is a ceiling on the U.S.’s debt load and how the country will pay it back, concerns heard mostly on the right. “At some point we’ll start paying a price for this,” said Michael Boskin, a Stanford University economist.

Some economists have worried that a shock to the U.S. economy could drive investors ....

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