Baker defends Bernanke and Bush

In today's Times of London, columnist Gerard Baker defends Ben Bernanke and George Bush. An excerpt:

The Bush Administration, of course, is everybody’s favourite villain. It is believed to be piling up huge amounts of debt, threatening US financial stability.

But this, too, is hyperbole. The US Government’s deficit, while slightly high, is not massively out of line with international norms. Nor is the US public debt. Now I’ll grant you, that debt level, approaching $9 trillion, does sound like quite a lot. To paraphrase another economist, nine trillion here, nine trillion there and pretty soon you’re talking serious money. But the total value of US GDP is more than $12 trillion per year. Its debt-to-GDP ratio then is about 70 per cent, still low by comparison with, say, your average European country.

Baker is right that the current level of U.S. government debt is not a major problem. The major fiscal-policy problem is the projected path, as I highlighted in the previous post.