The United States Government has a debt of more than 34 billion dollars. Did you know that our Government owes 34 billion dollars? We’re talking about 34 trillion dollars! Every time I write about economic policy, I get a lot of emails and a lot of comments basically asking me why I don’t talk more about the national debt. So I thought it might be useful to explain how I see the issue of public debt and why it is not at the forefront of my concerns.
Specifically, let me make three observations. First of all, although $34 trillion is a very high number, it is much less scary than many imagine if placed in a historical and international context. Secondly, to the extent that debt is a concern, making it sustainable would not be difficult at all in terms of pure economics; It is almost entirely a political problem. Finally, those who claim to be deeply concerned about debt are all too often hypocrites; The level of their hypocrisy often borders on the surreal.
How scary is debt? That’s a high number, even if we exclude debt, which is basically money that one branch of government owes another; The debt in the hands of citizens continues to be around 27 trillion dollars. But our economy is also huge. Today, debt as a percentage of GDP is not unprecedented, even in the United States: it is about the same as in the end of World War II. It is considerably lower than the figure which is registered in Japan at the moment and well below the UK debt ratio at the end of the Second World War.
But haven’t there been many debt crises in history? Well, almost every debt crisis I have been able to find in history involved one country borrowing in another’s currency, leaving it vulnerable to a liquidity crisis when lenders, for whatever reason, fled to exits and the country couldn’t print cash to pay them until the panic subsided. In fact, the euro crisis quickly dissipated after Mario Draghi, then president of the European Central Bank, said four words — “whatever it takes” — that implied the bank would provide cash to stressed debtor nations. .
The only clear example I know of of a national crisis caused by high debt incurred in the The country’s own currency is that of France in 1926, and that story is extremely complicated. Still, even many of us who don’t believe that the current level of debt is going to cause a financial and economic implosion, can’t help but feel a little uneasy. before the forecasts which show a constant increase in debt as a percentage of GDP over the next 30 years. Therefore, what should be done to dispel this concern?
Keep in mind that governments, unlike individuals, never have to pay their debt. How do we pay off the debt from World War II? We did not. The federal debt when John F. Kennedy took office was slightly higher than it was in 1946. But the debt as a percentage of GDP had fallen sharply, thanks to growth and inflation.
So what would it take to stabilize debt as a percentage of GDP over the next 30 years? Bobby Kogan and Jessica Vela of the Center for American Progress, working with figures from the Congressional Budget Office, estimate that we would have to raise taxes or cut spending by 2.1% of GDP. That’s not much. The United States collects a much smaller percentage of its GDP in taxes than most other rich countries; Raising two percentage points more would not change the fact that we are a low-tax country and is unlikely to hurt the economy. If stabilizing debt seems difficult, it’s only because, as divided as our politics are, even the smallest steps toward responsibility are extremely difficult to take.
And by deeply divided politics, I mean primarily Republicans, who trumpet the evils of debt while pursuing policies that put long-term fiscal sustainability even further out of reach. In a related analysis, Kogan and Vela estimate that permanently extending tax cuts of Trump in 2017 would considerably worsen the fiscal outlook. However, it is difficult to find Republicans in Congress who oppose such an extension.
Worse still, House Republicans are pushing to drastically cut the budget of the Internal Revenue Service (IRS), which would deprive this body of the resources it needs to crack down on wealthy tax cheats. That is, while shouting about the budget deficit, they intend to cut taxes and try to block efforts to collect the taxes that high-income Americans owe under current law.
So the problem is politics—and more specifically, right-wing politics—and not the size of the debt.
Which explains why I don’t talk more about debt. The United States, with its huge economy and relatively low taxes, does not face a fundamental fiscal sustainability problem. With political will, we could solve the debt problems quite easily. To the extent that debt is a problem, it is a reflection of political dysfunction, primarily the radicalization of the Republican Party. This radicalization worries me deeply for several reasons, starting with the fate of democracy. Federal debt is hardly at the top of the list.
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