The National Debt is Probably Not the Problem You Think it Is
Hear me out on this.
Back when George Bush was in office (and after, but more defensively, during the Obama honeymoon), you heard a lot from folks on the left about how we were running up the national debt. Meanwhile, activists on the right, who’d mostly bit their tongues on this subject during the Bush years, now feel fantastically liberated to once again voice the same fear. Both sides have tried to punctuate their concerns by bemoaning the debt as a burden that we’re “leaving for our grandchildren.”
This pity-point however, is nonsense. Neither group is really being clear about what they actually object to. Or, perhaps, they just don’t know what they’re talking about.
See, the national debt isn’t like a personal credit card; that’s mostly because not many credit card holders can just up and tax themselves to raise revenue whenever they please. And government debt isn’t something that we are “leaving for our children to inherit” at least not in the simplistic sense that we are taking out giant loans and then offloading the duty repay them to someone else. That’s because while all of our children do technically inherit the responsibility of paying down the national debt, they also ultimately inherit all of the money that’s left in our pockets from not immediately paying down that debt. Certainly, it’s possible to have spending decisions that benefit some children at the expense of others. But that’s not a factor of running up debts in and of itself: that’s a factor of taxing or spending inequitably.
Of course, if you really care so deeply about the financial fate of your own specific children, you don’t actually have to wait for the government to change it’s debt-servicing habits in order to protect them from future tax burdens. All you’d have to do is buy government bonds for exactly the amount that you estimate is your family’s share of the current national debt. These bonds would then earn interest: interest that matches the rate at which the national debt earns interest (since you’d now be the people the government owes that interest too).
Now, obviously, buying 60,000 worth in government bonds would probably put a huge dent in your yearly budget. It’d make for a pretty miserable year: you’d mostly likely have to cut back rather severely on things like having a roof over your head and food.
But then, that’s sort of the point: if the debt itself were really such a huge problem, and retiring it such a huge priority, then what you are really talking about is the government immediately taxing everyone to cover it all. And that would be really, really painful. It’s usually better to spread that sort of pain out over a long period of time, in yearly increments. Thus, you’d probably prefer that the government tax you a little bit, every year. And, surprise, that’s exactly what it already does!
Of course, as a country, we’ve decided to tax only a fairly small amount today, which of course inevitably requires that we will someday have to tax much higher rates down the road to make up for it. Luckily, our children will almost certainly be much, much richer, so there will be a lot more to go around. So it’s basically all gonna work out. Unless, of course, our whole country and economy falls apart, but then we’ll much have bigger problems anyhow. But the point is: the size of the national debt isn’t particularly likely to cause that to happen, at least not directly (see below).
National debts are actually nothing more than a question of how to finance national spending. And national spending is going to happen whether you do it or the government takes your money and does it for you (the only alternative is saving, but that requires someone willing to borrow the money from you to then ultimately spend it on something else). Unlike with personal credit card debt, the people to whom we basically owe all this money that we’re borrowing… is ourselves. So it all pretty much works out.
Worried that we’re borrowing “too much?” Well, the thing is, governments have to finance things via either borrowing or taxation, and they cannot borrow infinite amounts of money: they can only borrow as much as people are actually willing to lend them. As it happens, lots and lots of people are still willing to lend the US government their money, so we’re okay on that score for the time being. It’s certainly possible that the United States (i.e., all of us) could welch on its debts, but since it (i.e. us) is stuck on the planet earth, it’d be a little hard for it to hide from the people it owes money to.
And of course, these days, we often owe that money to people in foreign countries: but then, these people have their own governments in debt as well as direct financial interests in our success such that it still all comes out to roughly the same thing anyhow. We’re basically all too interconnected to be anything but all in the same boat. Heck, if our economy tanks for good and we can’t afford to pay anyone back, it’s almost certainly our lenders that are going to get screwed in the deal, not us, and everyone knows it. When a bank sends repo men to someone’s house, it’s generally because they know that the person living there doesn’t have the most advanced military in human history.
That people are willing to lend us their money anyway is just a testament to how good an investment people still think the US government is: we’ll pay you back eventually, and usually not even in carpet bombings! So if you’re worried about the national debt turning into a huge disaster somehow, just be aware that you’re probably worrying about a problem that’s more important to the well-being of Chinese investment firms than American citizens.
If this all sounds far too glib, it is, in a sense. That’s because there are plenty of important things to worry about when talking about the national debt. First of all, a government spending money on things that it must later tax us to pay for is inherently wasteful. Nearly every possible form of taxation ultimately reduces our overall economic welfare by causing people to forgo purchases and activities that would benefit everybody. That’s why we should always be wary of government spending on principle (even if it is sometimes necessary and/or justifiable). If we’re going to tax and spend, we’d better make sure it’s worth the inevitable waste (which is not to say that individual citizens can’t spend their own money wastefully too, it’s just that the particular waste from taxation is a nigh-mathematical certainty).
But then there is the more pressing problem that perhaps what the government chooses to spend our money on is not really what we most wanted in the first place. After all, if you hired a personal spending agent that bought your groceries for you, and they ended up doing a great job of picking out a nice selection of yummies, you’d be pleased. On the other hand, if they bought nothing but milk when you’re lactose intolerant, you’d probably fire them on the spot. All the milk would spoil: it would be a huge waste of time and effort for everyone.
Well, that’s pretty much exactly the situation with the government: it’s set itself up as our purchasing agent and has taken over some of the decisions about how we’re all going to spend our store of national wealth (leaving us all with the far less important question of precisely how to finance that spending: taxes now vs. taxes later).
So when liberals and conservatives complain about the national debt, the “what about the children!” line is mostly nonsense. What they’re really upset about is WHAT we’re choosing to spend our money on: liberals tend to hate the fact that we’re buying guns, while conservatives hate the fact that we’re buying butter. Libertarians tend to hate the fact that we’re buying so much period, as a whole, instead of letting individuals make their own spending decisions. Communists would be upset that anyone other than the government gets to make any of their own spending decisions. And of course, Glenn Beck is just incredibly upset all the time about everything.
So it goes.
Just remember: what can potentially hurt “the children” is not either you, or the government on your behalf, spending money. That’s going to happen regardless. It’s the fear that we might spend it on really dumb and wasteful stuff, thus reducing the potential wealth in society and leaving less neat things to pass on to them.
But, as I said, our children, and especially our children’s children, are almost certainly going to be richer, healthier, live longer, live happier, and just generally have all sorts of awesome things we never got. Ingrates!