Two points in time

1973 and 2016:

Graph #1: Monetary Interest Paid as a percent of GDP (annual values)

In 1973 the money we paid out as interest added up to just about 15% of GDP.
In 2016 it was a little less, about 14.3% of GDP.

So interest rates were probably similar 1973 and 2016, right?

Let's see. Here's the policy rate of interest, set by the Federal Reserve:

Graph #2: The Federal Funds Rate (annual values)

In 1973, more than 8 percent. That's unusually high.
In 2016, less than half a percent. That's unusually low.

You and I couldn't borrow at those rates; I think the Federal Funds Rate is for loans of what Milton Friedman called "high powered money". We would have had to pay higher rates. But different interest rates tend to move together. The Fed tweaks the Fed Funds Rate in order to get other interest rates to move. Or as some people might say, the Fed Tweaks the Fed Funds Rate so that it moves with other interest rates. Either way, the different interest rates tend to move together.

In 1973 the Fed Funds Rate was more than 20 times its 2016 value. That's a big difference. But in 1973 the interest we paid (as a percent of GDP) was only a little bit more than what we paid in 2016: 14.98% of GDP in 1973, versus 14.3% in 2016, from the first graph.

I show interest relative to GDP because GDP is a measure of income. I'm looking at the cost of interest in comparison to the money we earned. As a bite out of income, the money we paid as interest was almost the same in 2016 as in 1973: between 14 and 15 percent.

The portion of income that went to pay interest was almost the same, even though the interest rate was a lot higher in 1973. How come? Because the interest rate is only one of the factors that determines how much interest we pay. The other factor is the size of our debt. But you knew that:

Graph #3: Debt of All Sectors: Government and Other (annual values)

In 1973, debt of all sectors was something over $2000 billion.
In 2016, something over $66000 billion.

By calculator, our debt in 2016 was 29.7 times the size of our debt in 1973.

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Interest rates were high in 1973 and low in 2016. Debt was low in 1973 and high in 2016. The cost of interest was just about the same percentage of income in 2016 as in 1973.

It's not a coincidence that the cost numbers are similar. That's what I started with. I picked years where the interest cost was between 14% and 15% of GDP. Then I looked at interest rates and accumulated debt for those years. Tricky, huh.

Anyway, when you think about the cost of interest, you have to figure both the rate of interest and the amount of debt on which interest is paid.

Most people that talk about interest rates ignore the level of debt. The other way around, too: Most people that fret about debt don't talk much about the interest rate. Both views are incomplete.