Some people argue that a large national debt will make future generations poorer. One way to test this is to see what happened after the last time the United States had a large national debt: after World War II. As Figure 36.5 shows, the debt-to-GDP ratio was over 100%, a bit higher than even today’s ratio. Let’s compare this to Figure 26.3 and Figure 30.5, which shows the growth rate of GDP and the unemployment rate, respectively.
a. During the 1950s, was the growth rates lower than average? How about during the 1960s?
b. During the 1950s, was the unemployment rate higher than average? How about during the 1960s?
c. Overall, is it fair to say that the two decades after the massive World War II debt were worse than average?
This single case doesn’t count as conclusive proof: Perhaps the United States just got lucky, or the federal government did an unusually good job spending its World War II expenditures to build up its capital stock (a point emphasized in the excellent Francis Ford Coppola film Tucker: A Man and His Dream), or perhaps a massive short-term debt doesn’t cause much economic trouble. You can learn more about these possible explanations in other economics courses.