Over at National Review, Andrew Stuttaford admits that a recent column by Tim Bond doesn't "inspire confidence." But he really likes this part:
According to the BIS [the Bank of International Settlements], since the start of this century, advanced economy non-financial debt (that is debt owed by governments, business and households) has risen by 86 percentage points of GDP to just shy of 300 per cent of GDP. The world has never been as levered as it is today.
This is under the headline, "The Great Unraveling (2)." But let's take a look at the BIS data:
First things first: how do you like the chart? Once in a while I come across something where the data is noisy and it's better to show a trendline instead. But I hate to get rid of the raw data itself, so this time I just faded it out a lot. It's still there if you're interested, but it doesn't make it impossible to pick out the trends.
Now on to the data. As you can see, household debt is down. No problem there.
Corporate debt is up, but not by much. It doesn't really look like a problem either.
So there's really nothing here at all except for one thing: the stale old conservative bugaboo of government debt. The problem is that conservatives have been hollering that rising debt will destroy the West for decades and decades. Literally. Here is a review of Our National Debt from 1949:
The peace of mind of a conscientious American must be disturbed every time he is reminded that his government is 250 billion dollars in debt. He must be shocked by the frequent announcement that every newborn baby is burdened, not with a silver spoon, but with a debt of $1700....The [Committee on Public Debt Policy] believes that the challenge can be met...but these hopeful prophecies are voiced in the tone of a leader summoning his people to an uphill struggle which will demand all their courage, wisdom, and devotion.
The reviewer is none other than James Tobin, who thinks the Committee is overreacting. Nevertheless, this was the kind of thing that greeted the public with regularity.
I'm not really in favor of ignoring the national debt and letting it rise without restraint. Still, after 70 years of being wrong about this it strikes me that it's now conservatives who bear the burden of proving their case. There's a limit to how long you can cry wolf before you need to show receipts, especially when it's your own tax policies that have been largely responsible for the problem you're so distressed about.
This is very Ricardian, how private debt decreases as government debt increases.
Non-government debt has also increased greatly since WW II, although it peaked temporarily around 2008 with the housing bubble.
They lost all of their credibility on this issue in 2001. We were going to pay it all off but W wanted to send people checks.
And somehow the fact that a Democratic president solved it and a Republican Congress and President destroyed it is completely forgotten and forgiven. We still have to insert the lol about Trump's tax cuts to break the spell that GOP=deficit hawks when this shouldn't have been remotely plausible since 2001.
Eliminating the debt has been a conversation within the Democratic Party only for the last 30 years.
Dick Army, who claimed to be an economist, warned that if the Clinton tax hikes passed, the recovery would come to a crashing halt and the deficit would explode. Instead, the recovery acelerated and the deficit disappeared. Hard to imagine how he could have been so wrong, but the voters still punished the Democrats and gave the Republicans control of Congress.
W had help in cutting taxes. Financial genius Alan Greenspan warned him of the dangers of paying down the national debt.
A major problem with our relatively short, two-year election cycles is that the longer term effects of policy enactments on public debt (like tax hikes or cuts) don't start manifesting themselves fast enough for the party that implemented them to gain credit (or alternatively, suffer the consequences) for them.
For example, when Clinton's tax hikes slowly started reducing deficits, the surplus wasn't achieved until after the GOP retook Congress, and they've been crowing about this accomplishment of theirs ever since. Likewise, the Biden administration is now getting the blame for the massive deficits that resulted from Trump's tax cuts.
In the end the Democratic Party needs to greatly improve its communication skills in driving home the economic benefits of its policies. We see this over and over again in the persistent opinion found in surveys that the GOP's policies are better for the economy. It's a maddening vicious circle, but Democrats have got to get in front of it if they ever want to change this false, public perception.
It doesn’t help that Dems usually insist on fully paying for whatever programs they institute, which leads to purposefully delayed implementation of those programs’ benefits. Like when they passed the ACA (Obamacare) but most of the benefits didn’t begin until a full 4 years later in order to get a positive review from the CBO, allowing Republicans 2 full election cycles to bitch and moan about the taxes and costs before anyone noticed any benefits.
Why is there no data for Japan's debt going back any further than 1991?
OK then, now chart Japan's GDP Growth rate and that of the United States going back to say 1961. World Bank seems to have that data, but not the spiffy, Drumesque trendlines: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=JP-US
I don't have Kevin's panache with trendlines, but I took a stab at it: https://docs.google.com/spreadsheets/d/1UjVEpCjQA0asvI6CiQid0VnyaiJAHQIQDiFX15_7KvQ/edit?usp=sharing
What then is the definition of OK here?
Japan hit a demographic crisis years ago. They've been trying to pump up their economy to keep it from a deflationary spiral.
China will have the same issue shortly.
The age-old "OMG the debt!" argument that Republicans use to beat up on Democrats is what I call the Royal Scam (sorry, Steely Dan) of politics. Federal debt is NOT what most people think it is. It is NOT anything like personal or household debt, where you owe money entirely to people OUTSIDE your household.
Ask this question: who owns the federal debt? The answer, mostly is "we do." In other words, when the government borrows money to cover that awful "spending" we keep hearing about, it will pay that money back mostly to itself or to YOU. The cash flow is mostly "inside the household." Only 24% of the debt is owed to foreign investors, and when you hear conservatives howl that we owe all that debt to "China," note that actually China only owns 3% of it. The biggest holder of federal debt is -- drum roll -- the federal government itself! A lot is owned by Social Security, a lot by the Federal Reserve, a lot by the military and other government agencies. In the private market, a lot is owned by mutual funds (us) and pension funds (also us), a bit by state and local governments (us), etc. . . . you get the idea.
Mostly, we owe that money to ourselves, so when so-called debt hawks peddle the narrative about how much money a newborn baby owes because of that "out-of-control" spending, it's a big damn lie.
Republicans are really good at running up the debt and crashing the economy--then blame the Democrats for it.
I just saw an add by a Republican congressional candidate blaming her opponent for give-aways to the rich. Trump's tax cut, not a give away to the rich; student loan relief is?
C99, you're exactly right. Imagine for a moment owing yourself a million dollars. Do you feel richer? Do you feel poorer? Of course neither, because the idea of owing money to yourself is meaningless.
More specifically, the whole concept of Government borrowing is misunderstood. Government bonds are no more and no less than future money--printed, if you will, on exactly the same printing press as any other Government money. All forms of Government money--paper notes, reserve balances at the Fed, and Treasury securities--are financial assets of the private sector and corresponding liabilities of the Government. Eliminate the liabilities of the Government and you will by necessary accounting logic eliminate the corresponding financial assets of the private sector. And that would be an economic disruption that would make the Great Depression look like a Sunday school picnic.
+10
+100 social credits
Source of data for my rant:
https://www.thebalancemoney.com/who-owns-the-u-s-national-debt-3306124#:~:text=The%20public%20holds%20over%20%2424.29,and%20holders%20of%20savings%20bonds.
And for Part II of my debt and spending rant, how about all that out-of-control spending that is running up the debt (that we owe mostly to ourselves)? It's also nothing like household spending. Let's say your family buys a boat. You borrow $10,000 from the bank to buy that big ol' boat. You put yourself in debt because you want to have fun driving your boat around. That's "spending," and it could be irresponsible depending on your finances.
But let's say the federal government spends $1 billion on infrastructure. That money goes to federal contractors who build infrastructure that facilitates U.S. commerce, making it more efficient or more productive -- in other words, creating value that STAYS IN the country. That "spending" has increased the capital value of U.S. assets, growing the economy and thus making the federal government MORE capable of paying back the debt -- to bondholders inside the country. Similarly, if the federal government "spends" the money to help people either through better health care or anti-poverty programs, that should make the PEOPLE more productive, thus also improving the economy. Same outcome.
So the other part of the Royal Scam in Republican political messaging is the way they've weaponized the word "spending," misleadingly equating it to household "spending" that doesn't add value.
"But let's say the federal government spends $1 billion on infrastructure. That money goes to federal contractors who build infrastructure that facilitates U.S. commerce, making it more efficient or more productive -- in other words, creating value that STAYS IN the country."
NATIONAL DEFENSE HIGHWAY SYSTEM.
Some time ago, I was reading an online discussion on ‘conservative’ proposals for pre-funding of Social Security obligations, i.e. creating an sovereign wealth fund that would pay the benefits out of earnings on investments (managed by private firms for fees, of course). This would have required a much higher payroll tax rate for many years to fully fund the future obligations of the OASDI system. A critic pointed out that by keeping the payroll tax rate low, but sufficient to pay current obligations, money is left in the economy for producers and consumers to spend or invest as they wish; future obligations would continue to be paid out of future revenues. Thus, the critic noted, the current system functions as an ‘index fund on the entire economy’ - as the money is spent and invested, the economy grows, and Federal revenues increase proportionately. And, as with index funds, the government isn’t paying high management fees.
Just for the sake of having some numbers to discuss, as of 2021 the 1% (in the US) held $42 trillion in wealth and US national debt was $31 billion. So, can we pay it off and the 1% will still hold $11 trillion? Si, se puede.
*$31 trillion, obviously.
Americathon!!!
https://www.imdb.com/title/tt0078766/
Total debt in the US is up to around 400% of GDP, far higher than it's ever been.
https://www.statista.com/statistics/1083150/total-us-debt-across-all-sectors/
The country is not going to go broke, since most of this is held by US citizens. The part that is held by foreigners could be a problem, especially if Republicans cause a default on US bond payments but we're not going to turn into Greece. But who owes what to whom, and for what reason? We certainly know that student debt is a problem. Are there major leveraged asset bubbles? Specific problems may not be visible until the next financial crash. By some measures there was actually a temporary peak of debt around 2008, which represented the housing bubble. Was that a problem? Yes, but it was not really a matter of total debt or government debt, it was banks going wild and extending credit to almost anyone. But the higher the private debt, the more likely that there is something of this sort going on somewhere.
Of course Republicans' complaints are nonsense. Anyone who is really concerned about the national debt should be calling for higher tax rates. And do they want to put limits on corporate or private borrowing? That would not be good for banks and Wall Street.
So, where the hell are we? Some (Bill Maher, Bret Stephens) are predicting a red wave and a red carpet leading to fascism with the reinstatement of the Trump regime. Others (Gail Collins and the Nates on good days) predict a split with the GOP taking over the House and creating ongoing mayhem and with the Dems eeking out a win in the Senate and trying to help us survive. Others (well, Michael Moore) are foreseeing Dem wins in both houses. Why are we so messed up and why isn't there some logical consensus? What's really gonna happen and how much is it gonna cost us?
There’s no consensus because political polling has become so much more difficult, for multiple reasons. Caller ID. Distrust of any and every source of information/knowledge. Fewer landlines. Hyperpartisanship. Hate- and fear-mongering. I doubt anyone knows what the true error margins are anymore.
Debt you keep rolling over isn't a problem when interest rates are low. But if Japan one day has to pay 10% interest on 200% of GDP, by my count that's 20% of GDP every year just to service its debt.
Not that it matters much now that the GOP is poised to blow up the global financial system by freezing the debt ceiling.
Well of course it doesn't happen in ‘one day’; bonds are maturing and rolling over continually, so the effect of a higher interest rate would be gradual. The other point is that under current central-bank dogma, high interest rates are used to fight high inflation, and when inflation is high, debts are being paid back in cheaper currency. So the real interest rate is less than the nominal.
Public debt to GDP is a useless statistic that should be abandoned.
At a household or business level, debt to current income isn't even a useful metric. Ignoring debt payments, asset values, R&D/education spending, and likely future income is ridiculous.
The reason that the prognosticators are always wrong about debt to GDP predictions is that the metric they are using isn't telling us anything about the future.
That the US stopped using public funds to invest in the future during the 1970/80s is far, far more important than the debt to GDP...and the slowdown in productivity and growth that followed shouldn't be surprising.
+10
Does it not occur to people that on the opposite side of the ledger are hundreds of millions of people with savings accounts, investors, and retirees?
Or nah, debt is always a bad thing because no one should have access to stable, if low return, investments?
The issue we should have with public debt is not how much is too much, but rather, how well are we using our debt?
Tax cuts can have extremely low multipliers, especially when you target the rich. Infrastructure investments and worker retraining/education have very high multipliers.
If we want our debt to be used efficiently to spur GDP growth, we shouldn't target tax cuts, but rather, investments in people and infrastructure. That's how simple the issue is.
Yes, precisely the other very important factor.
Infrastructure investment - physical as well as immaterial (productive worker training) are
And while tax cuts can sometimes make sense, it is absolutely the case that they have become the irrational ideological tool of a kind of inverted Bolshevism on the Right in the USA (which also infected UK as one saw with Truss, happily rapidly turfed out as the staggering incompetent she was/is).
One can quibble on specifics but the observation is primary and important.
Debt to fund current consumption is not great and should be avoided as possible
Although how much is a consideration as even productive can get you in trouble if taken on too much too fast. (rather like in industry, one would be foolish to fund in 100% equity but equally foolish to overleverage as putting you in a fragile position in case of shortfalls).
+10
We all know that Republican want us to be responsible adults. to do so they want us to take responsibility in our lives and not rely on SS and medicare. Crying wolf about the level of government debt, mostly raised by their action as Kevin highlighted, is just part of the plan to scare the gullible crowd and steal their benefits.
Did you notice how entitled and cocky Republican speakers are recently? They now openly say they want to "reform" SS and Medicare..... and face no push back... the passivity of their constituents (Fox News doesn't relay any of this) will make them bolder. be scared
Most people believe there is a money tree. And on the money tree grows the money fruit, of which there is a limited supply. If you pick the fruit and give it to another person, then I can't have as much for myself. If you sell all the future money fruit via going into debt, then I (or my kids) will have less in the future. Try to convince most people that this is NOT how money works and they will get uncomfortable because their consciousness might bump up against the reality that the worth of money is actually a constructed fiction.
Republicans I think know this about both money and people's "intuition" and have used it against Democrats forever.
First things first - I like the faded "raw" data and dominant trend line.
My problem isn't with the apparent history of our increasing debt not being a problem. My problem is with the scenario, "What if we're wrong? What if it's okay now because the other current problems are manageable, but a Perfect Storm (tm) lays over the horizon and is headed our way?"
Tackling the debt - balancing the budget such that there is no deficit - may cause economic pain. But the consequences of being wrong on this issue could be catastrophic.
Also, I'm not sure these concerns are a conservative viewpoint anymore. It was Republicans that started the "borrow and spend" thing that's been going on for decades now. They only care about this anymore when they can weaponize the issue.
If you look at history, including our recent history, these storms that you worry about invariably occur on the supply side. Wars, pandemics, droughts and crop failures, supply cartels, etc. are what engenders the crises. Size of the public debt or deficit is irrelevant, either for causing these crises or for dealing with the crises when they occur.
That is simply wrong and historical ignorance.
The Eurozone crisis was provoked by over-leverage in and of itsself (done via Greek fraud, although Spain paid for Greek ingerance).
And that is merely most recent history.
Elevated public debt is not irrelevant in the least - elevated debt that is near carrying capacity - that is ability to service - easily turns a mere hiccup of a real economic moment into a full blown crisis, the leverage becoming the source of the actual crisis rather than a shortfall in X Y or Z.
The Eurozone crisis is caused by the fact that the Greek government borrows in and commits to repayment in a currency (the Euro) that it can not print at will. It has no bearing on public debts of monetary sovereign countries like the United States and Japan which seemed to be the subject of the original post and, I presume, the comment I was responding to. Greece's problems stem from the fact that the Greek Government's borrowing resembles private debt.
It is true that there can be debt crises: we had a big one in 2008. But that was caused by private debt. A bunch of people in the private sector (mostly homebuyers) owed a great deal of money to a different bunch of people in the private sector (mostly banks and mortgage companies, plus investors who bought mortgages from banks and mortgage companies), and either couldn't or wouldn't pay when house prices collapsed. The losses to banks was so great that they were in danger of not being able to pay their creditors, etc. etc. This crisis was ultimately resolved by having the Government (which is not financially constrained) buy the troubled assets from the banks (who, like the rest of us are financially constrained). Financial crises are *always* a result of private debt, never public debt.
There is no such thing as "carrying capacity" for a nation that pays its public debts in the currency that it creates (that's us and most nations outside the Eurozone). The idea of "leverage" makes absolutely no sense for an entity that creates its own money. The ability of such a nation to respond to a hiccup or full blown crisis is never financially constrained, regardless of past or present condition of debt or deficit. The ability of such a nation to respond to a pandemic or drought or other crisis is limited by its access to real resources: labor, materials, equipment and infrastructure, technical ability of its citizens. Never by finance.
It is not either credible nor a good idea to point to Japan as a benchmark for national debt as a problem or not, as Japan has far too many uniquely Japanese factors (of which notably almost all issuance held domestically and a truly peculiar retail savings regime which soaks up massive amounts of domestic debt and is insensitive to factors that would come into play in Anglo markets).
If Drum wishes to make an argument, UK, and the EU states are actual benchmarks. There is ample econometric as well as current financial examination of these so one has no need to rely on US political comment.
In both the Eurozone crisis and now with UK (in the market tantrum that brought down Truss) one can see parameters of upward boundary on developed country "safe' ability to carry debt.
Clearly USA due to its own pecularitities relative to US Dollar can leverage the market rather more than a Spain or a Greece, but neither is there unlimited headroom. And one would want to have headroom in case a Pandemic or other emergency came along so as to be able to comfortably turn on the firehose of fiscal stimulus.
As such prudence and peer benchmarking (as in UK for example) suggests USA should look to working down the deficit - not in a crisis fashion but certainly stop growing it in Percent of GDP terms.
It's rather like running a corproation (but not a household). A reasonable amount of leverage is a wise thing. Reasonable will vary by your average cash flow (or in national terms, economic performance).
The United States, UK, and Japan issue their own currency, and pay in their own currency. Eurozone states borrow and repay in a currency they do not create (only the ECB can create Euros). In other words, the US, UK, and Japan have a printing press, Eurozone nations have a credit card. That makes all the difference in the world.
What happened recently to the UK pound had nothing to do with UK being able to pay any bill that is payable in pounds, now or in the future, or "fiscal headroom". It had to do with the pound's exchange rate against other currencies. I'd have to look into this a bit further, but I imagine the big unique Japanese circumstance is that it is largely self-sufficient (or at least has a relatively minor foreign trade imbalance) so it doesn't worry much about exchange rates.