It's easy to see how slow growth can increase debt: expenses grow through inefficiency, inflation, or whatever, but revenue fails to keep up. So we get low growth driving up debt. I can buy that.
If you have a big mortgage to pay off, will that slow down your salary increases? How? Why? You may lament the fact your salary goes to paying interest on your mortgage, but if anything you're more motivated to increase your salary (the proportional benefits from raises are greater!)
Government debt slows growth because you have to pay it back. The currency (you savings/income) may end up being devalued, or your taxes may have to go up.
In many cases, taking debt increases growth.
Maybe you took convertible debt or a loan to fund your startup? I don't imagine you told investors or bankers that taking on debt would slow the growth of your company. Did your 10-slide pitch deck show upward growth because you intend to stop growing as soon as they fund you? Why would investors lend you money if they knew your growth would slow down as soon as they did it?
Now, consider government. What happens when your community outgrows its roads? Do new businesses continue opening in that area? Do well-paid executives and engineers move to a city with lousy, outdated schools, poor telephone service, and minimal broadband Internet service?
Businesses use limited amounts of debt to fuel growth because they have a justifiable case that shows that the servicing of the debt is less than the returns on the investments made with the debt.
Often, businesses are wrong about whether or not their "justifiable case" is true. When wrong, their debt may just cut into the other assets on their balance sheet. Perhaps creditors will allow them to refinance so that their debt servicing is below their investment. Perhaps they'll go bankrupt. Perhaps they'll close their doors.
The US government 1. Has a really crappy track record of finding a return for its investments. 2. Will cause much more world disruption if it has guessed wrong on the whole "returns on investment vs debt servicing" equation.
Finally, businesses do not borrow money without limits. Their borrowing of money is based upon the amount of credit that outside parties give them. Given the US Government's downgrade in its rated ability to service its debt, shouldn't we be concerned that we're overextending ourselves?
We are 5 years into massive deficit, and massive debt, how much better are the schools? Execs and engineers are migrating back to Detroit now? The biggest problem is that for all that debt, there is very little to show for it.
The core problems is if the government taxes and extra $1000 dollars away from you that you would have used to grow your business, then spends it on debt service, or war, or something wasteful, that will slow growth.
Taxes are mostly outside of government control, so more spending implies more debt. Reducing debt implies reducing spending, and therefore less loss.
You're right that it's not the debt itself (or even the spending) that matters, but it's a good enough proxy.
