How much debt is too much?
Is the national debt too high? Are the annual deficits too high?
No.
How could they be?
Are you worried about running out of numbers?
So then, instead of $1 or $2 trillion, the deficit could be raised to $5 or $10 trillion and that would be fine? not worse?
There is a need to increase it that much, because it's not easy to raise the $6 or $7 trillion in revenue in order to pay the annual federal budget. So if the deficit can't ever be too high, as you claim, why don't you demand increasing it to $7 or $8 trillion, every year, in order to pay for all the needed gov't programs and eliminate any need for taxes? not only the infrastructure and health care, but all the social programs. The real need is for $10 trillion or even $15 trillion annually in order to take care of all the needy, the homeless, and many new programs to benefit "working families" and others. Better accommodations for criminals, rehabilitation, more education and child care, more safety-net programs -- your argument is to increase the federal deficit every year to however high is necessary in order to pay for all the programs that anyone demands -- way higher than the present $1 or $2 trillion. And so do away with taxes altogether, which are such a burden on the rich and middle-class and poor.
If that's not what you mean, then you must believe there is some necessary limit to the debt, at some point. Where is that limit? How do you decide what the limit is?
Money is debt. A bigger economy needs more money, and so needs a larger national debt, all things being equal.
Larger than what? Why should a larger nation require a higher debt/GDP ratio than a smaller nation? It obviously needs more money, but why should the public programs be funded by a higher percent of debt than for a smaller nation? Our deficits today are higher than 10% of the budget, even 15%. Which was hardly ever the case until recently, and now it's this high every year. Why? How is the need for debt today any greater than it was 50 years ago? or 100 years ago?
Even if it has to increase so much during an unusual crisis, what is unusual today that the deficits should be the highest ever? How has the need for deficits tripled or quadrupled over what it was 20 or 30 years ago? No one is giving any explanation for this. Maybe for 2 years the need increased, in 2020, but how is the need now 3 or 4 times greater than it was in 2015? or in 2000-2007? or 10 times greater than it was in the 1970s? etc.?
Even before the pandemic there was a greatly expanding annual deficit during most periods, even when there was no emergency at all. Why? What was the need to expand the deficit?
When you say "How could the deficits ever be too high" you're basically saying there's no limit ever, the deficits can go up with no limit at all, as long as someone wants any program. So just give to anyone whatever they want, at public expense, with higher public debt, and that debt can't ever be too high, no matter what the money is spent on. Just for what anyone says they want, to satisfy their personal desire for something.
Are you worried that the USA might be injured, or grow too old to work? That it might be fired from its job? These are the reasons why ever increasing debt is bad for people.
No, there are other reasons. Many debts people get into are bad which have nothing to do with getting injured or growing old or getting fired. They are bad because they have to eventually be paid for and they are not worth the cost -- i.e., bad judgment by the borrower. Bad business investment, bad immediate consumption which produces no future gain and isn't enough to justify the cost. If you want pleasure or entertainment, you should pay for it with today's wealth, not postpone paying for it until 10 or 20 or 30 years later.
Much of the bad debt people get into is just instant gratification, not worth much and yet the borrowers do it mindlessly just for the benefit now and the delusion that it's free because the cost is put off until later, so they can enjoy something that's free today and there's no tomorrow to worry about when the bills start to arrive. Why care for now? just put it off, worry later. And that's why they do it, because the repay of it is only hypothetical, not real as long as it's far off in the future.
What about the poor person who gets a loan at 50% or 100% interest? That's bad debt not because they might lose their job or get sick or get injured. Even if none of that happens it's still bad debt because it's not worth the price they're going to pay. They'd be better off to forego whatever it is because it's not worth the price they're going to end up paying for it.
The same is true of our excess public debt. The price we end up paying is too high for what we get in return. In many cases the right choice is either to go without, or if what we're buying is worth it then pay for it now, out of existing current revenue.
"Pay as you go" is a legitimate policy in many/most cases. Going into debt is not an automatic right choice in all cases when you want something, which is the premise of the present chronic-debt crusaders. Instead of this automatic instant gratification premise, we need a premise which says a benefit we want is worth paying for now rather than taking on debt obligation to pay for it later. Or, for something which will produce future wealth it might be worth it to acquire it now and pay later after that future wealth has been produced. But much debt is spent without producing future wealth and is not worth the cost.
But those things don't apply to national debt.
All the same logic applies to public debt the same as to private debt. Some long-term values can be bought by means of payments spread over a period -- the same for public or private -- or some investments in future production might be worth it. But whether it's private or public, the repayment has to be based on something productive which creates the wealth needed for the repayment, and not based on still future borrowing to pay off the original debt. In neither case, private or public, is it good debt when the only way to repay it is to just keep repeating future debt again and again as the only way to repay the earlier debt. Which is what the current excess federal debt is based on.
So it's not true that good public debt is really different than good private debt. Just because national debt can be repaid by "printing" money which private parties cannot do does not change the fact that it's bad debt if the only way to repay it is to keep borrowing and borrowing into the future with no limit, or to "print" the money as needed in order to pay for it and thus inflate the currency without limit.
In both cases the principle is the same: good debt is the kind which will be repaid only through something that creates future wealth, or through production, which is financed by the original debt, and then repaid out of the wealth that is created from the production which the debt made possible as an investment. It's only this kind of debt which is legitimate, because it leads to the benefits produced which are greater than the costs. The expected high benefits are the incentive which inspires the decision to borrow. And not the intention to just run up more debt in the future.
Why, in brief, do you think national debt cannot increase indefinitely?
"in brief"? you're kidding.
The national debt CAN increase indefinitely, but it makes everyone worse off, not better. Because resources are wasted on bad investments which end up costing more than any benefit they produce. There's plenty of reason to believe our economy today is worse than it would have been if we had never driven up the debt so high but instead had kept the annual deficits low. Even balancing the budget overall (over many years), though maybe not essential, would have produced a better outcome or better economy today than what we have gained as a result of the increasing higher and higher deficits for the last 90 years or so.
What boundary are you expecting to cross, or what crisis are you expecting to encounter?
There may or may not be a sudden shocking crisis, like a crash. But there will be more of the "bridge to nowhere" phenomena if we continue the "economic stimulus" philosophy of driving up "demand" and "jobs! jobs! jobs!" and corporate welfare and other blind spending orgies aimed only at instant gratification without a long-term benefit that is worth the cost we have to pay for it.
(The "jobs! jobs! jobs!" insanity seems to be the biggest delusional factor driving the current obsession with more public debt, not based on any improved performance by workers/producers, but just a hysterical delusion that there are mobs of trouble-makers needing to be put into job slots to keep them out of mischief.)
The best criterion for judging any debt spending is that of repayment not by future increased debt but by increased future production, or wealth created from the investment. This means a pattern not of only increasing debt, but a pattern of reduced debt during some periods, or an overall pattern of limited debt, staying at the same low level rather than the consistent increasing debt we've had over so many decades. The traditional principle of a debt/GDP ratio remaining below 80% might have been a good rule -- though probably lower, like 50%. But we know we're doing more harm than good as the debt % keeps going up steadily, with no indication of any balance, no leveling off or some offsetting surpluses, but only consistent increased debt % over a long time, and we have to keep revising our definition of "good" debt to mean whatever is demanded by the current instant gratification obsession and which leads to the delusion that there is no limit and gov't can create all the magic "money" we want for however much our fantasy might wish for.
fact or fallacy:
Public debt is essentially different than private debt.
Bear in mind that it's impossible for a fiat currency issuer to not have sufficient money to pay debts denominated in that currency.
Yes, any country with the legal power can "print" however much "money" is needed, like the Germans did in the 1920s. You're right that any government can do this.
And this is the basic difference between public and private debt? and so it's OK for gov't to run up debt without limits?
And that revenue is a consequence of, not a prerequisite for, spending by fiat money issuers.
Yes, it's true that Germany had power to first go deep into debt and then just pay it off as a consequence of "printing" the money required. You're right that "any country" can do what Germany did in the 1920s. So that's your argument why there's no such thing as "insufficient currency" to pay it no matter how much the cost may be. You have a point there.
When you want to buy stuff, first you must earn or borrow money.
When the government wants to buy stuff, it just does. No prior earnings or borrowings are needed.
You're right -- the government can just do what Germany did and simply "print" whatever is necessary to buy the stuff without earning or borrowing. And the ones paid don't even have to agree to it. You just print it and pay them and pronounce that it's a done deal. You do have an air-tight argument there for how debt can increase without limit. Good for you!
But then (if it wants to avoid inflation) it typically needs to take some money back from the economy in "revenues".
But now you're finally getting serious and admitting there is a limit to the debt, which can go up too high and has to be paid back by something other than just more new debt to repay the old debt.
What are the "revenues" for unless it's to pay back the debt which got too high? or to pay the public costs without running up further debt? Above you said there's no such thing as not having "sufficient money to pay the debts," whereas now you're saying there's a lack of "revenues" or a need to "take some money back" in order to avoid inflation. What's the difference between that and saying the current debt is too high and that there's a limit on how much fiat currency is possible and so we must either borrow more or cut public spending in order to avoid inflation?
To say gov't "needs to take some money back" is just another way of saying it has to repay its debts, just as private borrowers must do, and
so there's no essential difference between public and private debt. In both cases there's a need to repay the debt by future revenue, in which case there's also a need to reduce the spending/borrowing so the amount needing to be repaid is not so much.
So then
what's the essential difference between the two? They both are restricted by the same requirement to not waste money on something that isn't worth the cost.
You can't say there's a need to raise the tax revenue (to repay the debt or "avoid inflation") unless that also means there's a need to restrict the spending (and borrowing) in the first place which later requires the future tax revenue to repay it. Because the need to repay it -- the problem you acknowledge -- is also eliminated by not borrowing and spending it in the first place. The need to dissolve the future repayment problem can also be accomplished by not taking on the debt in the first place, so you cannot ignore the benefit of reducing the original spending once you acknowledge that it's a problem trying to raise the future revenue necessary to fix the debt by repaying it. I.e., once you admit that the future repayment is a problem needing a solution (such as additional tax revenue), you're also admitting the problem of the original overspending and overborrowing which originally caused that later repayment problem, and so in some cases that original cause is also a problem to correct -- "When the government wants to buy stuff, it just does" even though there was "insufficient money" --- This is just as much a problem to correct as any later need to "take back some revenues" to pay it and still "avoid inflation."
You cannot complain that it has to "take back" these revenues unless this means it might have spent too much in the first place which caused this need to "take back" something. Not spending it in the first place also solves the problem by eliminating this need to "take back" something. Unless you prove that it had to be spent in the first place, because it's worth the cost, you cannot complain of a need to "take back" anything to pay for it later. Rather, that need could have been corrected earlier by not buying that "stuff" someone originally wanted.
In the current debt ceiling issue, this translates into simply refusing to allow the debt to increase. And this will prevent the government making the same mistake in the future of buying "stuff" simply because someone "wants to buy stuff." So you're admitting it's not enough that "the government wants to buy stuff" -- it has to be restricted to buying only what is worth the future cost, which it does not do now. The debt ceiling corrects this by forcing the spenders to cut enough so it goes back down below the level of the revenue to pay for it, without new borrowing.
What proportion of spending needs to be recouped is determined by how much growth the spending stimulated.
This mystical "growth" is not something which can be measured objectively. We know the benefits of the debt are insufficient to compensate for the cost, because if they were enough, there would not be this need to keep increasing the debt higher and higher as the only way to repay the original debt, as we have been doing for nearly 100 years.
This debt increase is not a reflection of a larger economy.
This is an increase in the percent of debt, not just a higher total number of dollars being spent.
In economic terms, the "growth" is simply the increase in GDP, but this can often be just waste which produces no real value at all, because GDP is only the total dollars spent, even if it went to waste. E.g., the "bridge to nowhere" was an increase in the "growth" -- and yet this expenditure was waste, not anything beneficial to the economy. So trying to measure the "growth the spending stimulated" means nothing, or is so subjective that there can be no real figure to identify this supposed benefit to the economy. Of course the differing factions can give their guesses as to how much benefit is produced by this or that spending.
Obviously the decision-makers try to guess how much benefit there is to this or that program. But a good indication of the waste is the consistent pattern of higher and higher debt in order to repay the earlier debt, which would not be the case if the spending is paying for itself with future payback, or benefit, so it would pay for itself without the need for continued debt as the only way to repay the earlier debt. The continued higher debt/GDP is a major clue that this is bad debt rather than good debt or investment to produce future benefit that's worth the cost.
The more effectively governments grow their nation's ability to produce stuff, the less revenue they need in order to cap inflation.
But also the less they need to rely on future debt in order to repay earlier debt. That "ability to produce stuff" proves itself as the need for future debt remains low. When it does not but has to keep increasing, it's a good indicator that the gov't or its debt is not effectively growing the nation's ability to produce stuff.
Some kind of limit to the debt which cannot be circumvented is necessary in order to ensure that whatever we're investing in is paying for itself rather than just perpetuating itself by means of more and more debt as the only way to repay it on into the future.
