“”In a 2012 paper, economists Carmen Reinhart and Kenneth Rogoff define a “debt overhang” as a situation in which the debt-to-GDP ratio exceeds 90 percent for five or more consecutive years. After looking at 26 debt overhangs in 22 advanced economies since 1800, they conclude that “on average, debt levels above 90 percent are associated with growth that is 1.2 percent lower than in other periods (2.3 percent versus 3.5 percent).” These overhangs last a long time—in their sample, the average lasted 23 years—creating a cumulative loss in economic growth that’s “nearly a quarter below that predicted by the trend in lower-debt periods.”
That work has been validated by left-wing economists associated with the University of Massachusetts, who were critiquing an earlier version of Rinehart and Rogoff’s work that had mistakenly found that debt overhangs reduced growth below zero. The critics conclude that “the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent.””
We crossed that Rubicon back in 2010”
…
“You don’t have to believe there’s something magical about a 90 percent threshold to grok the idea that unpayable government debt has a negative effect on growth. The people who comprise markets recognize that a day of reckoning will eventually come and government will do some combination of raising taxes, reducing services, or inflating currency. None of those outcomes, and especially the unpredictability they promise, is good for economic growth. Which helps explain why the CBO predicts that average annual growth between 2019 and 2029 will be 1.9 percent. That figure compares to 3.2 percent average annual growth between 1950 and 2018.”