The rule comes from Buffett’s recent to a question about the debt ceiling: "As this country grows, our debt capacity grows."
That simple statement packs a lot of meaning into eight words. It means that a growing economy can neutralize the impact of growing debt. It means that “paying down the debt” is not necessary when the economy grows at a sufficient pace. It means that taking our eyes off the overwhelmingly important goal of returning the economy to robust growth is a waste of valuable time.
Below is a screenshot from a campaign ad the Obama team aired in Texas in late July.
If paying down the debt actually is in the Obama plan, that begs some questions. Given that “paying down the debt” requires running budget surpluses instead of deficits, just when does the Obama plan call for those surpluses to begin? Why has not one Obama budget ever called for any surpluses? Besides that, haven’t Obama’s Democratic supporters and Keynesian advisers (as well as many conservative Republicans) been telling us, correctly, that running surpluses in a sluggish economy is a really dumb idea?
And, lastly, if running surpluses is not in fact in the Obama plan, why does it say so in the ad? Could the ad merely be his campaign’s attempt to avoid complicating the economic message during the campaign—instead of admitting that Buffett’s new rule teaches us that paying down debt is not necessary with sufficient growth?
The Romney campaign also wanders off onto the same sidetrack in Romney’s book, :
Also, of all political groups, the supposedly private-sector-friendly Tea Party should understand that successful launching of private businesses not only creates new wealth for the equity owners and extra tax revenue for the government, but also turns a successful firm’s growing debt into a non-problem. The same principle holds true for the government. However, that truth has become lost to the Tea Party—apparently because of its zealous mantra about “paying down the debt”—and that misdirected mantra has put a dent in Romney’s growth message.
In any case, Romney’s business experience and success surely mean that he understands Buffett’s new rule. As Buffett implies, growth takes priority over debt—why not just admit it?
Buffett’s new rule is trying to tell us that a focus on growing the economy—jobs, jobs, jobs—is more important than any distraction about running surpluses to “pay down the debt.” The new Buffett Rule is worth repeating: as the economy grows, its debt capacity grows. That means, for example, that a $20 trillion debt in a $30 trillion economy is more sustainable than a $15 trillion debt in a $15 trillion economy—even though the debt is a lot larger in the first case.
The new Buffett Rule means that political rhetoric about “paying down the debt” is political hot air. It is a time-wasting diversion, if not an attempt to pander to the public’s emotional reaction to the out-of-context scare-word “debt.” The solution to our current economic problem comes back to getting our economy growing faster than our debt; it does not require “paying down the debt.” Mitt Romney certainly knows it, and Barack Obama probably does—but neither one of them is telling us. Not yet, anyway.
Steve Conover retired recently from a 35-year career in corporate America. He has a BS in engineering, an MBA in finance, and a PhD in political economy. His website is .