reader Bruce Hall noted that the sharp rise in the debt-to-GDP ratio in 2020 was partly attributable to the public health economic lockdowns, namely:
But the economic shutdown certainly affected the denominator of the 2020 equation.
I note that using CBO's estimated counterfactual potential GDP does not materially change the situation – I added the red line to the blue line shown earlier postal.
figure 1: Year-on-year percentage change in the ratio of federal debt held by the public to GDP (blue). Year-over-year percentage change in the ratio of federal debt held by the public to potential GDP (red). NBER-defined recession peak-to-trough dates appear gray. The orange dotted lines represent the beginning and end of the Trump administration, with dates in the first quarter of 2017 and the fourth quarter of 2020. Source: U.S. Department of the Treasury through FRED, BEA, CBO (February 2024), NBER, and author's calculations.
