National Debt Thread III: Revenge of the Terrible Metaphors

[Post-Keynesian Economics]

EDIT: Provocative oversimplified statement to get the ball rolling and get people to respond: The national debt doesn't matter and we honestly can probably go ahead and keep growing it and it will cause no problems at all. Also I want the deficit to be higher and balancing the budget is a dumb idea.

Hey everyone! Roughly a year ago was my second thread on the topic of of US national debt alarmism and how it is basically all bunk. I'm really happy to see that at least on the internet, these ideas against alarmism have spread A LOT in the last year (not that I would even remotely claim that I did this, there are plenty of better advocates for this thought than me - but it's still awesome).

Anyway, I think this idea can still be further discussed and there's still a debate to be had here. Here's my last thread on the topic:

After seeing a few... erm... less than informed (in my opinion) statements on the national debt in this forum, I'd like to again open up the validity of concern over the national debt back up for another debate.

Now, last time (viewtopic.php?f=20&t=286208), I laid out my argument and though it was provocative, it didn't get a lot of substantial opposition simply because nobody really wanted to respond to my giant text blocks of arguments. And that's understandable. So, in an effort to be more accessible and less jargon-y, I want to present my argument in a more simplistic sense and then if anyone wants to get deep and dirty in the economics, I'm happy to get in there with them.


Here's just a few simple reasons why our national debt is not as dire of a situation as it is portrayed.

1. China only owns about 8% of our debt. Most of our debt is owed to individuals and banks within the United States.

2. No country can "call in" our debt. That's not how public bond markets work. If a country wants money for its debt holdings, it will sell bonds to another country.

3. The main difference between the US and Greece is that Greece does not fully control its own currency.

4. The national debt of the United States is not currently the biggest for the nation in history because it was bigger as a proportion of GDP during World War II, and our debt did not keep our economy from booming.

5. Lack of debt does not insulate us from economic problems, proven when paying off our debt in 1835 was followed by a long recession.

6. Many nations have larger debts relative to GDP including Ireland, Iceland, the UK, the Netherlands, Belgium, Monaco, Switzerland, Portugal, Austria, Sweden, France, Denmark, Finland, Germany, and New Zealand.

7. The only time in modern US history that we dealt with an inflation problem was during a time of relatively low debt and was caused by forces outside the domestic economy.

So, NSG, are you concerned about the national debt? Should we be really working towards a balanced budget? Should we be cutting spending if only to "reduce the national debt?"

I'm eager to hear your responses.

I'd like to add a couple points - both facts I have learned since the last thread and things that have changed.

8. China no longer owns the largest foreign share of our national debt. Japan does.

9. A significant portion of our national debt is owed to ourselves - many of you already know that - but I'm not just referring to the Federal Reserve or Social Security. Frequently, when a government department is individually running a surplus they will use the extra dollars to buy bonds - to buy debt! So in a weird way, keep in mind that some debt is actually the result of surpluses.

So, NSG, I leave you with the questions I've left you with previously:

Are you concerned about the national debt?

Should we really be working towards a balanced budget?

[Russels Orbiting Teapot]

In a private economic recession, the government does need to step up to keep the quality of life up and boost the economy. The government can recoup it's losses in the next economic boom.

[Post-Keynesian Economics]

In a private economic recession, the government does need to step up to keep the quality of life up and boost the economy. The government can recoup it's losses in the next economic boom.

Sure, that's basic Keynesian thought. But let's go a bit beyond that assumption. Why does the government (monetary policy aside, let's focus on fiscal) need to recoup its losses in the next economic boom?

[Post-Keynesian Economics]

I almost forgot how much people in this forum love discussing economics. No wonder this thread blew up.

The irony is that the poll seems to indicate some disagreement, and yet...

[Russels Orbiting Teapot]

Sure, that's basic Keynesian thought. But let's go a bit beyond that assumption. Why does the government (monetary policy aside, let's focus on fiscal) need to recoup its losses in the next economic boom?

Not necessarily all of its losses, but things should be shored up during an economic boom, where during a recession we need to not give too much consideration to how much the government needs to spend to keep things going.

I've gotten a much better understanding of the debt these days, so I understand that it's not the problem that it's made out to be, but with what the Republicans pulled the other year with the debt ceiling, I'm somewhat nervous about the debt as a vulnerability in the global market.

[Post-Keynesian Economics]

Sure, that's basic Keynesian thought. But let's go a bit beyond that assumption. Why does the government (monetary policy aside, let's focus on fiscal) need to recoup its losses in the next economic boom?

Not necessarily all of its losses, but things should be shored up during an economic boom, where during a recession we need to not give too much consideration to how much the government needs to spend to keep things going.

I've gotten a much better understanding of the debt these days, so I understand that it's not the problem that it's made out to be, but with what the Republicans pulled the other year with the debt ceiling, I'm somewhat nervous about the debt as a vulnerability in the global market.

Fair. And the debt ceiling situation is definitely a concern. But that kind of political failure would reduce just as much confidence in the US financially whether the debt was one million USD or one hundred trillion USD.

[Atlanticatia]

It's not an issue esp. when the US is not operating at capacity like right now. Wages, employment, and other key indicators are still quite mediocre.

[Russels Orbiting Teapot]

Fair. And the debt ceiling situation is definitely a concern. But that kind of political failure would reduce just as much confidence in the US financially whether the debt was one million USD or one hundred trillion USD.

But that loss of confidence has a much larger effect when the world is using our bonds as the financial bedrock on which economies are built.

[Hydesland]

I almost forgot how much people in this forum love discussing economics. No wonder this thread blew up.

The irony is that the poll seems to indicate some disagreement, and yet...

I love discussing economics, but I agree with 95% of what you're saying. Since you're a post-Keynesian I'm sure there are some more contentious 'heterodox' views you can express to really spark up a discussion.

[Salandriagado]

Not necessarily all of its losses, but things should be shored up during an economic boom, where during a recession we need to not give too much consideration to how much the government needs to spend to keep things going.

I've gotten a much better understanding of the debt these days, so I understand that it's not the problem that it's made out to be, but with what the Republicans pulled the other year with the debt ceiling, I'm somewhat nervous about the debt as a vulnerability in the global market.

Fair. And the debt ceiling situation is definitely a concern. But that kind of political failure would reduce just as much confidence in the US financially whether the debt was one million USD or one hundred trillion USD.

True, but if we take as granted that congress will continue to be in its current (broken) state for the foreseeable future, then building up a gap between current debt and the debt ceiling might be worthwhile, if nothing else, just to add a bit of a buffer before it can be used to hold the country to ransom again.

[Russels Orbiting Teapot]

True, but if we take as granted that congress will continue to be in its current (broken) state for the foreseeable future, then building up a gap between current debt and the debt ceiling might be worthwhile, if nothing else, just to add a bit of a buffer before it can be used to hold the country to ransom again.

Unfortunately, that's something that only congress can accomplish.

It doesn't help that financial matters like this are way outside of most people's ability to comprehend.

[Post-Keynesian Economics]

True, but if we take as granted that congress will continue to be in its current (broken) state for the foreseeable future, then building up a gap between current debt and the debt ceiling might be worthwhile, if nothing else, just to add a bit of a buffer before it can be used to hold the country to ransom again.

Unfortunately, that's something that only congress can accomplish.

It doesn't help that financial matters like this are way outside of most people's ability to comprehend.

You might distinguish "ability" with "care."

[Geilinor]

In a private economic recession, the government does need to step up to keep the quality of life up and boost the economy. The government can recoup it's losses in the next economic boom.

Sure, that's basic Keynesian thought. But let's go a bit beyond that assumption. Why does the government (monetary policy aside, let's focus on fiscal) need to recoup its losses in the next economic boom?

The government should wait to spend that money until it's needed.

[United Russian Soviet States]

The national debt should be paid off.

[Post-Keynesian Economics]

Sure, that's basic Keynesian thought. But let's go a bit beyond that assumption. Why does the government (monetary policy aside, let's focus on fiscal) need to recoup its losses in the next economic boom?

The government should wait to spend that money until it's needed.

Define "needed."

[Post-Keynesian Economics]

The national debt should be paid off.

Why?

[AiliailiA]

In a private economic recession, the government does need to step up to keep the quality of life up and boost the economy. The government can recoup it's losses in the next economic boom.

Sure, that's basic Keynesian thought. But let's go a bit beyond that assumption. Why does the government (monetary policy aside, let's focus on fiscal) need to recoup its losses in the next economic boom?

Whatever you consider the best level of deficit, the deficit during a recession will be higher than that. Therefore to hit the average (the "best level") over the cycle the deficit would need to be lower than that between recessions.

Unless you think that recessions can be prevented altogether by a sufficient level of recurrent deficit?

[The Liberated Territories]

Debt is good you say? Excellent!

I demand more free money from the government then.

[AiliailiA]

Debt is good you say? Excellent!

I demand more free money from the government then.

Fine by me. Would you prefer a regular payment, or a lump sum on your 18th birthday?

[The Liberated Territories]

Debt is good you say? Excellent!

I demand more free money from the government then.

Fine by me. Would you prefer a regular payment, or a lump sum on your 18th birthday?

I want a million dollars.

Oh, and I think a Rawlsian argument can be made to give every 16 year old a free Hyundai. After all, transportation is a much needed amenity.

[Kelinfort]

Debt is good you say? Excellent!

I demand more free money from the government then.

Do I really need to say why this is a strawman?

Deficits should definitely be minimised, but national debt is not unduly evil.

[AiliailiA]

Fine by me. Would you prefer a regular payment, or a lump sum on your 18th birthday?

I want a million dollars.

Oh, and I think a Rawlsian argument can be made to give every 16 year old a free Hyundai. After all, transportation is a much needed amenity.

You can have $30 a week. I don't mind doubling the deficit; let's see how that goes before attempting the living wage or the free Hyundai.

[The Liberated Territories]

Debt is good you say? Excellent!

I demand more free money from the government then.

Do I really need to say why this is a strawman?

Deficits should definitely be minimised, but national debt is not unduly evil.

Why then, should it be minimalized? PKE makes the perfect case above - we have had debts double the size before and yet our economy still didn't crash down! If debt is good, then I propose that we stimulate the economy by giving everyone free money. The rest can handle itself later.

I want a million dollars.

Oh, and I think a Rawlsian argument can be made to give every 16 year old a free Hyundai. After all, transportation is a much needed amenity.

You can have $30 a week. I don't mind doubling the deficit; let's see how that goes before attempting the living wage or the free Hyundai.

No - I want a 20 dollar per hour minimum wage and a free Hyundai. But ask me this - how do you know when to stop?

[Kelinfort]

Do I really need to say why this is a strawman?

Deficits should definitely be minimised, but national debt is not unduly evil.

Why then, should it be minimalized? PKE makes the perfect case above - we have had debts double the size before and yet our economy still didn't crash down! If debt is good, then I propose that we stimulate the economy by giving everyone free money. The rest can handle itself later.

That would only succeed in creating hyper inflation by doubling the monetary base. As I said, debt is not an evil, but spending for the sake of "free money" is ludicrous.

[The Liberated Territories]

Why then, should it be minimalized? PKE makes the perfect case above - we have had debts double the size before and yet our economy still didn't crash down! If debt is good, then I propose that we stimulate the economy by giving everyone free money. The rest can handle itself later.

That would only succeed in creating hyper inflation by doubling the monetary base. As I said, debt is not an evil, but spending for the sake of "free money" is ludicrous.

First off, aren't we going into a deflationary spiral? A bit of a shock would be good, no?

Secondly, I do not see how free money can be any less damaging then the daily stimulus package we seem to get, in fact, one might argue that the distribution of money directly to the people instead of through the banks would be a better policy, as we can ensure that more of it will get used instead of sitting around. Hyper inflation could be fought directly/inversely as production would similarly go up.

So then what's your argument?