Len Burman, James K. Galbraith, Robert Greenstein, John S. Irons, Grover Norquist, and Alice Rivlin respond in the National Journal. Galbriath:
At the peak at the end of FY 1946, gross US national debt was 121.7 percent of GDP. Today the number is just under 70 percent. In 1946 the debt held by the American public – including by the Federal Reserve System – was 108.6 per cent of GDP. The comparable figure for 2009 is just under 60 percent of GDP. As of the 2010 budget it was expected to rise to 70 percent in FY 2011, and to decline thereafter.
After 1945, the debt/GDP ratio declined gradually. Levels comparable to the present were seen throughout the late 1950s and into the 1960s. They were lower in the 1970s – an economic period marked by inflation, which reduced the debt/GDP ratio – and higher again in the 1980s, as the economy recovered from the sharp slumps of 1980-82. That's the record.
Those high public debt levels of 1946 were completely benign. Long-term interest rates were pegged at two percent. Series E bonds — Victory bonds — formed a very large part of the financial wealth of the American middle class at that moment. In fact, they created the American middle class — a working population that had never before enjoyed any financial security at all. Their existence, as claims on future purchasing power, gave businesses confidence to invest, and so helped avert a relapse to the Great Depression.
Comparatively, US public debt in relation to GDP today is well within the normal range for advanced and solvent countries, including Germany, Canada, France and Austria. It is lower than many, including Italy or Greece — a small, vulnerable country whose bond offerings just last week were nevertheless 3:1 oversubscribed. The US position is obviously stronger than most, because of the dollar's international role. So there is no basis, whether in history or cross-country comparison, for the current panic over public deficits and debt.
Yes, conditions are different today. The American public no longer holds the American public debt directly. Some of it is held abroad, where interest payments just pile up, with no good effects on financial wealth or spending here. Much of it is held by banks, who are doing nothing to promote economic recovery. The middle class, which holds housing, stocks and cash, is hurting on all fronts. These are problems. But they are not problems of too much public debt, rather of its distribution.