Apparently even the "smart" people are finally ready to admit that we should start reducing our annual deficit. In 2017 I was unclear on what the endgame was. I'm still unclear.
And yet, hasn't the evidence that the debt level doesn't matter only been reinforced? I recall commercials in the 80's showing a little baby and some men in suits showing up saying something like "welcome to the world, you owe $63,000" or some dramatic amount. And yet here we are almost a half century later. Did that baby have to pay anyone $63,000? Odds are he is probably working right now, making money, probably has a house maybe kids. Shrug. Seems fine.
We can also consider the recent inflation surge took a chunk off the accumulated debt. Also debt to GDP has been falling since 2020 (https://fred.stlouisfed.org/series/GFDEGDQ188S) despite deficits. What I find odd is the debt scold community seems to not account for this, which tells me it's more about the scolding than the problem.
On a larger level, though, the debt alarmists do deserve an answer and actually owe everyone else an answer. Why hasn't debt seemed to ever cause a major problem?
Now you can say yes debt has caused problems. Argentina seems to have 'debt crises' that arrive like comets. Weimar Germany, Zimbabwe and all that. But actually are those cases where debt was the problem or something else? Basing your lifestyle on exports whose price varies and is denominated in a foreign currency, for example. Or having massive burdens imposed upon you by a victor in a mass war? Or simply not managing your life well? Spain, for example, ran surpluses before the 2008 crises and what did debt scolds offer when it seemed like it was suffering as much as Greece? "Maybe your should have ran bigger ones". Blah. Not as helpful as "real socialism has yet to be tried correctly" but not as far from that as it should be.
So asking this it might be helpful to consider that the debt level is large because the economy is large and it is somehow related to that. Why not make debt 1000% of GDP? Question: can we? Like if tomorrow the US Treasury offered 30 year bonds with a face value of $207T (about 900% of GDP to make our total debt 1,000% of GDP) for sale who would buy them? If someone did buy them, what would the US gov't do with $207T? You can't really say spend it because the US economy has nothing you can buy with that (GDP about $23T or so) whether the gov't tries to spend it directly on roads and tanks or gives it to people like you to spend on ice cream and soda. If it could be spent, though, GDP would surge making the ratio very much not 1000% of debt to GDP anymore.*
I suspect the answer is going to be something like the speed of light. "Why can't we just get real close to it and then give it a bit more gas?" Because a whole lot of things that you don't notice now suddenly start making themselves known to conspire to stop you, like your car mysteriously getting more mass and funny things happening to time.
I think what falls out of this is that there's a lot the present can do for the future, but 90% of it is just making sure there is a future. After that, influence becomes almost nothing. If the people of the 1950's scrimped a bit more, paid higher taxes and had lower benefits in order to make the Federal debt smaller. Our lives today would be absolutely no better than they are now.
If you've followed so far, I haven't made a case that the federal debt can never be bad, only that it isn't bad now and likely wasn't in the past. I think there is a case that the debt levels we've seen in our lifetimes are in some sense organic. It doesn't mean they can't purposefully be changed but since the dynamics are not understood, such efforts can become more dangerous the more dramatic you want to make them. Sort of like 'body hackers' who try things like all protein diets or massive amounts of water drinking and discover unexpected problems erupt even from seemingly good things.
So a thought experiment: Imagine a UFO visits the US today. They announce they will come back in ten years and demand a payment of $5T or else blow up the earth. Paying them isn't much of a debate. $5T is only $500B a year, that's serious money but doable. How should the US response?
Don't kick the can: Each year impose a $500B tax of some type, when the UFO returns the last tax payment secures the ransom of $5T.
Kick the can: Do nothing for 9 years. Panic in year 10 and impose a $5T tax or borrowing.
Why are these options not exactly the same?
*. What may in fact happen is the Federal Reserve creates $207T digital dollars, buys the Treasuries to stablize the bond market. The Federal Reserve, which is the gov't, owns the 900% of GDP worth of bonds, it also holds the Federal gov'ts 'checking account' which has $207T balance and since neither the US economy or world economy can product $207T of stuff to buy, essentially nothing happens. BTW https://fred.stlouisfed.org/series/TREAST
And yet, hasn't the evidence that the debt level doesn't matter only been reinforced? I recall commercials in the 80's showing a little baby and some men in suits showing up saying something like "welcome to the world, you owe $63,000" or some dramatic amount. And yet here we are almost a half century later. Did that baby have to pay anyone $63,000? Odds are he is probably working right now, making money, probably has a house maybe kids. Shrug. Seems fine.
We can also consider the recent inflation surge took a chunk off the accumulated debt. Also debt to GDP has been falling since 2020 (https://fred.stlouisfed.org/series/GFDEGDQ188S) despite deficits. What I find odd is the debt scold community seems to not account for this, which tells me it's more about the scolding than the problem.
On a larger level, though, the debt alarmists do deserve an answer and actually owe everyone else an answer. Why hasn't debt seemed to ever cause a major problem?
Now you can say yes debt has caused problems. Argentina seems to have 'debt crises' that arrive like comets. Weimar Germany, Zimbabwe and all that. But actually are those cases where debt was the problem or something else? Basing your lifestyle on exports whose price varies and is denominated in a foreign currency, for example. Or having massive burdens imposed upon you by a victor in a mass war? Or simply not managing your life well? Spain, for example, ran surpluses before the 2008 crises and what did debt scolds offer when it seemed like it was suffering as much as Greece? "Maybe your should have ran bigger ones". Blah. Not as helpful as "real socialism has yet to be tried correctly" but not as far from that as it should be.
So asking this it might be helpful to consider that the debt level is large because the economy is large and it is somehow related to that. Why not make debt 1000% of GDP? Question: can we? Like if tomorrow the US Treasury offered 30 year bonds with a face value of $207T (about 900% of GDP to make our total debt 1,000% of GDP) for sale who would buy them? If someone did buy them, what would the US gov't do with $207T? You can't really say spend it because the US economy has nothing you can buy with that (GDP about $23T or so) whether the gov't tries to spend it directly on roads and tanks or gives it to people like you to spend on ice cream and soda. If it could be spent, though, GDP would surge making the ratio very much not 1000% of debt to GDP anymore.*
I suspect the answer is going to be something like the speed of light. "Why can't we just get real close to it and then give it a bit more gas?" Because a whole lot of things that you don't notice now suddenly start making themselves known to conspire to stop you, like your car mysteriously getting more mass and funny things happening to time.
I think what falls out of this is that there's a lot the present can do for the future, but 90% of it is just making sure there is a future. After that, influence becomes almost nothing. If the people of the 1950's scrimped a bit more, paid higher taxes and had lower benefits in order to make the Federal debt smaller. Our lives today would be absolutely no better than they are now.
If you've followed so far, I haven't made a case that the federal debt can never be bad, only that it isn't bad now and likely wasn't in the past. I think there is a case that the debt levels we've seen in our lifetimes are in some sense organic. It doesn't mean they can't purposefully be changed but since the dynamics are not understood, such efforts can become more dangerous the more dramatic you want to make them. Sort of like 'body hackers' who try things like all protein diets or massive amounts of water drinking and discover unexpected problems erupt even from seemingly good things.
So a thought experiment: Imagine a UFO visits the US today. They announce they will come back in ten years and demand a payment of $5T or else blow up the earth. Paying them isn't much of a debate. $5T is only $500B a year, that's serious money but doable. How should the US response?
Don't kick the can: Each year impose a $500B tax of some type, when the UFO returns the last tax payment secures the ransom of $5T.
Kick the can: Do nothing for 9 years. Panic in year 10 and impose a $5T tax or borrowing.
Why are these options not exactly the same?
*. What may in fact happen is the Federal Reserve creates $207T digital dollars, buys the Treasuries to stablize the bond market. The Federal Reserve, which is the gov't, owns the 900% of GDP worth of bonds, it also holds the Federal gov'ts 'checking account' which has $207T balance and since neither the US economy or world economy can product $207T of stuff to buy, essentially nothing happens. BTW https://fred.stlouisfed.org/series/TREAST