Megan McArdle on the Obama deficits:

According to the CBO, which is usually preferred for projections because it does not share the White House Office of Management and Budget’s fervent desire to please the boss, the debt-to-GDP ratio will end up north of 80% early in the next decade. It peaked around 110% at the end of World War II. It peaked at about 47% under Reagan. In both percentage and absolute terms, the Obama debt-to-GDP ratio will be closer to World War II than to Reagan. More worryingly, unlike the World War II debt-to-GDP ratio, ours is expected to keep growing in the years beyond the graph’s end, because the projected deficits are higher than projected inflation.

The Obama deficits are projected to peak at 13%. This is not “somewhat larger” than Reagan’s; it is more than twice as large as Reagan’s 6% peak. In absolute terms, it’s just about halfway between Reagan and World War II. Matt goes on to note that this seems like a good time to run the biggest deficits since World War II. I agree. But the World War II deficits were distinctly different from the current run.

First of all, everyone expected that they would be paid off after the war ended by keeping tax revenue high and spending low. This is, in fact, what happened. No one expects this to happen now–not even the administration, which has promised to “cut the deficit in half” from the current unsustainable levels.

Second of all, the era of “total war” brought access to a large pool of essentially forced savings. People plowed their money into war bonds and war stamps because it was their patriotic duty, and because there wasn’t really much else to buy–goods either weren’t available, or were rationed.

The Obama administration doesn’t have this luxury. Our domestic savings rate is much smaller than our budget deficit, and no one’s going to rush to buy a “Liberty Bond” to bail out GM. Yields on longer-term debt have been rising over the last month, and credit ratings agencies have stepped up the pace of their warnings about America’s AAA credit rating. If interest rates get too high, the current deficits are going to crowd out more and more actual spending.

As I calculate it, South Africa’s current ratio of national debt to GDP is around 17%, which is within acceptable parameters. It would be interesting to see some sort of estimate on how much this will rise under Zuma’s planned spending programmes.