United States of America

THE CURRENT STATE OF DEMOGRAPHICS AND DEBT IN THE UNITED STATES

The United States is in a fascinating position as the world's largest economy and sole global superpower, yet in recent decades it has experienced a substantial accumulation of government debt with no signs of slowing. The country has not run a budget surplus since the mid-1990s and the fiscal legacies of both the Great Recession and the COVID-19 pandemic continue to weigh heavily on America's long-term debt trajectory. 

Demographically, the United States is younger than many advanced European or East Asian economies, but its fertility rate has remained below replacement level for nearly two decades, making demographic aging inevitable. As the large Baby Boomer generation continues to retire and the country's demographic structure begins to age more rapidly, the United States will increasingly face the same demographic pressures that have strained fiscal systems and constrained economic growth across other advanced economies. 

MODEL EVALUATION

To determine the predictive accuracy of each model, a robustness test was conducted. All models were trained exclusively on data through 2013, and then tasked with forecasting U.S. government debt levels from 2014 to 2023 using the actual demographic changes that occurred during those years. These predictions were then compared to the actual 2023 debt level.  

The results show that several models perform strongly out of sample. The Aging Economies model produced the lowest forecast error, followed closely by the Strong Democracies, Non-EU Advanced, and Global Sample Models. These results indicate that the demographic aging to debt relationship captured in these models is structurally robust and provides a credible foundation for long-run U.S. debt forecasting. 

INTERPRETATION

American Public Debt appears "sticky" at elevated levels and is likely to rise in the coming decades. The model indicates that population aging places persistent pressure on American fiscal sustainability. However, the United States benefits from several structural strengths, including its strong long-run economic growth, consistent inflows of high skill immigrants, and robust institutions. These factors help offset, but not fully neutralize the fiscal impact of aging. As a result, debt increases gradually rather than explosively, but remains on an upwards trajectory.

These forecasts assume the absence of future crises comparable to the Great Recession or the COVID-19 pandemic.  If another large and unexpected shock were to occur, the elevated baseline debt levels could increase the risk of fiscal instability in the world's largest economy. The United States does benefit from the unique advantage of issuing the world's reserve currency, which provides substantial flexibility in managing fiscal stress. While this advantage mitigates risk, it does not eliminate the country's vulnerability to large negative shocks.