There's a certain appeal to the idea that you can just grow your way out of debt. It's optimistic, it's forward-looking, and it doesn't require anyone to make painful choices. But according to Kent Smetters, the director of the Penn Wharton Budget Model, that story is "fantastic" in the sense of being a nice fiction, not a feasible plan.
Last week, President Donald Trump and Treasury Secretary Scott Bessent both leaned into the growth narrative as the U.S. national debt crossed $40 trillion. "The way you take care of debt is with growth, and we have tremendous growth. We've never had growth like we have right now," Trump said. Bessent echoed that sentiment, saying, "There's nothing magic about the 40-trillion number," and adding that the U.S. can "grow our way out of that."
The numbers, though, are stark. The Conference Board has warned that rising government borrowing could push up household costs and reduce future retirement benefits. The Congressional Budget Office projects that debt held by the public will reach 120% of GDP by 2036.
Smetters, speaking to Fortune on Tuesday, wasn't buying the growth-only solution. "People often get the causality kind of opposite," he said. "They think more growth, less of a debt problem, and in reality, it's just the opposite." In other words, the debt is a drag on growth, not something growth can simply erase. Policymakers should fix the debt to help the economy, not hope the economy fixes the debt.
What about the artificial intelligence boom? Could that be the magic bullet? Smetters is skeptical. "Even if we double the impact of, say, AI on productivity, it barely moves the balance because the initial benefits go up," he said. He figures the current AI investment surge could last "three to five-ish years," but it won't come "remotely close" to solving the debt problem.
There's also a credibility issue. "Credibility is really important," Smetters warned. If policymakers promise that growth will reduce debt and the numbers don't improve, markets could lose confidence. That's a risk no one should take lightly.
The debt milestone has sparked broader concerns. Economist Peter Schiff has warned that the Federal Reserve might resort to printing money to buy Treasuries, which could drive consumer prices higher. Former U.N. Ambassador Nikki Haley noted that the debt amounts to more than $300,000 per household, while investor Anthony Pompliano called the milestone "insane."
Interest expenses are already at a record $1.4 trillion over the past 12 months, and they're projected to climb to $1.7 trillion by November 2028. That could make interest payments the government's largest expense, surpassing even Social Security.
So while the growth story is a comforting one, the math suggests otherwise. As Smetters put it, it's a "fantastic story" but "pretty clearly" not feasible.
