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Who’s afraid of the national debt?

Here is a routine cri de coeur about the national debt over at National Review:

We are doomed:

Bottom-line: the party’s over. Current levels of federal borrowing are completely untenable. America’s flirtation with Modern Monetary Theory must come to an end. And we better course correct quickly. Otherwise, we might soon be staring down the barrel of a debt crisis.

How long have conservatives been screaming about this? Since the '80s? The '50s? The Great Depression? And nothing has ever happened. But they keep screaming and screaming anyway without even a shred of evidence that the national debt is actually a problem.

Here is US national debt compared to Japan:

Japan has been at allegedly catastrophic levels for decades, but it seems to keep serenely swimming along anyway. Conservatives have invented plenty of answers for this—aging population, higher savings rates, cultural differences, etc. etc.—but none of that withstands scrutiny. They simply can't deal with the fact that a big industrial economy with its own currency has been able to survive and even prosper with a national debt more than twice as big as our own.

As for us, our national debt goes up during recessions (1991, 2008, 2020) when we run deficits—as we should—and is otherwise pretty flat. There's really nothing dangerous going on.

On a related topic, here is how much we pay in interest charges on the national debt:

Ronald Reagan blew up interest payments back when tax cuts for the rich were going to supercharge the economy, but Bill Clinton put things right and interest payments have been steady ever since the end of his term. The only time they've risen significantly in the post-Reagan era is when Republicans cut taxes (2003, 2017). As a result, interest payments on the debt were lower in 2021 than they were in 1950.

And yet conservatives and Republicans keep up the same old schtick forever and ever, even though nothing ever happens. The national debt is unsustainable! We must change course immediately! Cutting taxes on the rich and cutting welfare payments to the poor is the only answer!

Come on. Don't just keep yelling "unsustainable!" and pretending it's an actual argument. Show us the receipts or stfu. It's probably not correct to literally say that the national debt doesn't matter, but a hundred years of experience shows that it doesn't matter very much.

55 thoughts on “Who’s afraid of the national debt?

  1. Ken Rhodes

    There's something important missing from those charts. What will happen (forward looking) to interest payments as a percentage of GDP when the interest rate goes up? That might prove to be somewhat scary.

    1. Austin

      Interest rates were much higher in the past, like during the 1980s. And yet, all that meant was that interest payments took up 3% of GDP instead of 1.5%. Oooh, scary!

      1. jte21

        That's not necessarily a big percentage of GDP, but it's a pretty decent chunk of the federal budget, almost $400 billion this year. That's someone's income of course -- which is nice -- but it's also money not being spent on healthcare, infrastructure, clean energy, etc.

    2. KenSchulz

      Interesting question for some historical research. When do interest rates go up? When the FOMC is trying to fight inflation — inflation, which lets borrowers pay back with cheaper dollars. That includes the government, although the Federal government rarely pays down debt, it just rolls it over into new debt. But that is a many-years process, as bonds mature. Rolling over the entire debt takes longer than any recent inflation period has lasted. So the increase in borrowing costs would be gradual and partial. But, as I say, one ought to look at the history to see what the actual patterns have been.

  2. Joseph Harbin

    Saw this on Twitter. Eek! A lot of those replies look like an algorithm stuck in a loop.
    https://twitter.com/charliebilello/status/1577704916486828037?s=20&t=-BdaOBBnn4LhAv1ey0iPYQ

    Suddenly, we need to worry about debt again? I expect it will be covered like the queen's death if a certain party wins the House. That's what happens when a Dem is president (esp. if raising the debt ceiling needs bipartisan agreement).

    FWIW: One good thing about inflation is that it lowers the burden of past debt. High interest rates, otoh, mean payments on the national debt go up.

    1. kylemeister

      "My party is very interested in deficits when there is a Democrat in the White House. The worst thing in the whole world is deficits when Barack Obama was the president. Then Donald Trump became president, and we're a lot less interested as a party." -- Mick Mulvaney

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    1. Austin

      You mean, like when they were approaching 2% during the Trump admin? Yeah, very curious why nobody cares about the debt when Republicans are in charge.

    2. jte21

      I forget who said it, but there are Republican pundits on the record saying that deficits caused by tax cuts "don't matter as much" as deficits caused by spending. Because reasons.

      At least they've abandoned the risible pretense that tax cuts "pay for themselves."

  5. Altoid

    Right-wing screaming about the debt is like right-wing screaming about the deficit and right-wing screaming about being tough on criminals-- it lets republicans pose as the Daddy Party. It's just schtick, or a ritual incantation. And as everybody notes upthread, they only use it when Dems can decide what we spend, and when elections get nearer they crank up the volume. Think of the magic disappearing migrant caravans, only about money.

    Still, refutation is useful. So thanks for the graphs, Kevin.

  6. bharshaw

    Massive amnesia here. The Fed is raising interest rates, meaning over the next few years the rates on our debt will increase, meaning that the proportion of GDP and our tax revenues for interest will increase from our current 1.5 percent to 2, 2.5 or 3 percent.

    IIRC when Clinton came in his administration had to scrap his proposals and go with a budget to please the bankers and Rubin. The problem is that when interest payments are 3 percent of GDP, that's money we can't use for infrastructure, health care, etc

    Reagan handled the problem when Volcker raised rates by cutting programs, block granting money to the states. When Clinton bit the bullet by raisining taxes, he failed with his carbon tax because of opposition from rural state senators (Democrats back then). He eventually got a small raise in the gas tax. He also lost the House in 1994 for the first time in decades.

    So Biden or his successor will face the same problem. I'm not aware that we have become any more enlightened and willing to face higher taxes.

  7. realrobmac

    Your assumption that conservatives cries about the debt are in any way in good faith is entirely misplaced. Somehow they were not concerned about the debt at all between the years 2017 and 2020 or the years 2001 through 2008.

    They want to cut taxes and they want to complain about Democrats. That's it.

    1. Troutdog

      This is the correct answer. The national debt (and budget deficit) only matter to Republicans when Democrats are in control.

      1. Starglider

        +1

        I personally worry about the debt. I mean, what if we're wrong? What if Japan is somehow bucking the trend, and it doesn't work as well for us? That's alot of potential catastrophe staring us in the face, and I have 0 confidence in any political party to handle it.

        And all this begs the question, how much is too much? That is anybody's guess.

        But I've also noticed how it matters to Republicans only when they're the minority party. Hypocrites.

  8. MrPug

    Speaking of Reagan, we're still waiting on the dystopian hellscape he predicted way back in the 1960's would occur if Medicare passed.

    Conservatives do this a lot.

  9. clawback

    If the hacks at the National Review are all worried about the debt I'm fine with tackling the issue by raising taxes on the rich.

    Oh, they don't like that solution? Then I guess they don't really care any more than the rest of us do.

  10. rick_jones

    Interest payments as fraction of GDP depends on interest rates yes? And it takes some number of years for those instruments to refresh/rollover/whatnot no?

  11. different_name

    I'm getting forgetful in my old age, didn't someone determine through Advanced Empirical Economics Smarts that we were approaching a point of no return from our horrible debting ways a couple decades ago?

    Like Mearsheimer or Richard Esptein or one of those other media-codependent douchebags who believe they have a Ph.D in every possible topic.

  12. middleoftheroaddem

    I think this article conflates two separate issues. Does the US have too much debt? How do we compare to Japan in terms of debt.

    Japan is a very unique country in terms of debt

    - The Bank of Japan owns 48% of outstanding Japanese Government Bonds
    - Japanese life insurance companies own 20%
    - Japanese banks hold another 14.5 %

    Big picture only 8% of Japanese debt is foreign owned. In contrast, 53% of American Federal debt is foreign owned.

    The domestic owners of Japanese debt accept very low rates/this is not a fair stand in for market debt returns

    https://www.statista.com/statistics/756192/japanese-government-bonds-by-type-of-holders/
    https://sgp.fas.org/crs/misc/RS22331.pdf

      1. middleoftheroaddem

        "As of December 2021, such holdings made up $7.7 trillion, or one-third, of public debt. Of that amount, 54 percent was held by foreign governments while private investors held the remaining 46 percent."

        1. clawback

          Right. So 33% is owned by foreigners. It is incorrect to say, as you did, that "53% of American Federal debt is foreign owned."

      2. civiltwilight

        Good catch. When I referenced the article to check your work, I was fooled by the colorful chart until I looked closer and realized it was showing the breakdown of the debt held by private foreign investors and public foreign investors. So I buckled down and read the whole document, and now my head hurts. But, indeed, "In December 2021, foreigners held 33% of the publicly held debt."

      1. middleoftheroaddem

        My point - Japan is an unfair comparison.

        - half of the debt is owned by the equivalent of the Fed: net, net this is not really debt
        - local Japanese accept below market returns on debt
        - only a small portion of the Japanese debt is priced at market
        - US has five time the amount of its debt in foreign hands: this debt is much more likely to be priced at market.

  13. raoul

    One of the consequences of raising interests rates is increasing bond payments to the holders, essentially a reverse transfer payment, this is one of the ways Powell is working against wage earners in favor of sedentary capital owners. Increasing the national debt can have negative repercussions and it matters whether budget appropriations are growing because of unique costs (student loans, Ukraine, Ida) or growing for other reasons. By and large, with growing revenues, the long term budgeting is under control. For the record: the 31 trillion dollars is actually misleading since it includes about 5 trillions in intragovernment debt (moneys owed from one agency to another) which in accounting terms is a wash.

    1. Lounsbury

      As opposed to sporty capital owners?

      Wage earners are losing via inflation rather more than any notional fixed income gains (net inflation particularly) - and of course huge owners of fixed income assets are in fact retirement and pension schemes.

      Rather less, "fat cats" implied...

  14. memyselfandi

    "Here is US national debt compared to Japan:" The mot important part of this graph should be the comment that now that Trump is out of office the debt is again falling as it did under obma once he ended the GWBush created disaster

      1. Starglider

        The last time debt fell was with Clinton, iirc - and it didn't fall much. Since then it seems every president has tried to outdo the previous one in terms of deficits.

  15. DFPaul

    There is one way and one way only to get the right wing to shut up about the debt whenever there is a Democratic president. And that is to make sure the next thing people think of when they hear about debt is "make the 1% pay for it". If the right wing is CERTAIN that is how people think about it, they will never utter the word debt again. In fact, you will hear how important it is that America go into more debt to support its precious creators.

    So, here's a few boring talking points.

    US debt is now about $31 trillion.

    The Fed says the top 1% has about $42 trillion in wealth.

    Thus, the 1% can pay off the US debt, and still have $11 trillion left over. The same Fed chart says the bottom 50% holds $4.41 trillion in wealth.

    So there you go.

    (Fed data: https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/ )

    1. Starglider

      An actual wealth tax, as opposed to an income tax, is going to be a hard sell. An argument can also easily be made that it's unconstitutional - the same argument that was used against the income tax until the 16th amendment was ratified. In our current climate, I seriously doubt we'll see another amendment allowing a wealth tax, either.

      Nice suggestion, but we'll have to try something else.

      1. SC-Dem

        The guys who wrote the Constitution imagined that the main tax collected by the new Federal government was going to be taxes on wealth. That was the main tax collected under the Articles of Confederation.
        When they talk about "direct taxes" they are imagining that they will be based on wealth or population (as a proxy for wealth).
        By the way, it was a total shock when the Supreme Court outlawed the income tax in the late 19th century. It was used during the Civil War without objection. The previous understanding was that the Federal Government could tax any damn thing it wanted to. This isn't surprising though, for about 90% of its history the Supreme Court has been a reactionary body devoted to protecting the rich and powerful.

  16. quickquestion

    This is a perfect example of why you should borrow as much as your income can tolerate and invest it. With inflation, you'll be paying that debt back with pennies instead of dollars (especially on 30 year mortgages). These days, saving is for suckers. I don't agree with it, but you've gotta borrow your way to wealth these days... (You may want to wait for housing prices to drop first though...)

  17. Jasper_in_Boston

    What Kevin said.

    Also, per my back-of-the-envelope math, the country's debt-GDP ratio declined in the fiscal year that just ended. Nominal GDP would've increased by something like $2.5 trillion in that period, and our deficit came in at about $1 trillion (in nominal terms it was easily the biggest decrease in the deficit in history).

  18. Jasper_in_Boston

    By the way, you can always count on Republicans to include intergovernmental debt when they're ginning up scary statistics for the rubes in the exurbs of Toledo. This is purely money we owe ourselves. Actual debts owed to outside bondholders is trillions and trillions less.

  19. Lounsbury

    Japan is in no way a very good benchmark for judging sustainability of US debt given the peculiarities of its funding (being a semi-closed system with massive domestic savings that for cultural peculariaty reasons are quite sticky and insensitive to changes). The system and cultural aspects relative to Japan are not applicable to Americans.

    So Drum shouting about Japan is either ignorance (and thus not a good basis of analysis, being grossly naive) or pre-set views as in inflation.

    That noted, looking to European or similar developed market peers without Japan's bizarrities, does bring comfort in terms of non panic.

    However, a century of econometric data does not say as Drum claims that it does not matter very much - as countries like UK etc. in modern era can attet.

    What econometric data say is that countries like USA have much more borrowing headspace before getting into trouble.... BUT debt levels over 100% GDP are not wise to run for long periods as you run risk of hitting a crisis moment and finding oneself hard-up against market limits, and then experiencing rapid system breaking escalation of borrowing costs.

    (See e.g. the idiocy of the current UK government and 'Reaganesque' driven blow up on borrowing costs)

    Covid and now Ukraine should be teaching the lesson that it is unwise to run borrowing hard-up against thresholds (rather similar to corporate debt lesson, having leverage is not a bad thing, running the company hard-up against maximum leverage is a good way to tip into crisis).

  20. Creigh Gordon

    Here's the thing: The Federal Government doesn't have a "credit card", it has a printing press*. And that makes all the difference in the world. All that "borrowing" people are worried about is simply printing of a different form of money; that is, Treasury bonds, which are in reality no more and no less than future money, printed on the same press as any other form of money.

    The consequence of this is that the Federal Government can pay any obligation, now or in the future, in any amount, regardless of the status and amount of deficit or total debt, as long as that obligation is payable in the dollars that it prints. This includes Social Security, Medicare and Medicaid, relevant pensions, and interest on the debt. The question, of course, is the value of those dollars. That's why we have taxes; to create a need for and thus a value for dollars.

    (Also, if you work through the consequences of money creation out of thin air by the Government, you'll see that two claims commonly made by deficit hawks are wrong: one that deficits will burden future generations, and two that deficits now imply tax increases in the future.)

    *I am aware that most money is electronically created, not printed in a physical form. That fact makes no difference to the argument at hand.

  21. nikos redux

    Pensions and institutions shouldn't have a safe place to park their money?

    Really, what's the problem. Treasury bonds are nothing but a savings account at the Fed.

  22. name99

    There are three camps involved in this.

    (A) people who believe you can't get something for nothing. Not just Republicans, also centrist Democrats. Conceptually correct, but they miss the details.

    (b) people who believe you can get something for nothing. This seems like a caricature, but their stance seems to be something like "wealth just happens magically". I'd love to have a better grasp of these people so I don't have to paint them as a strawman, but I honestly can't get such a better grasp. There was a time in the 60s when their agenda was very clear – they believed in extending the welfare state as a Leninist Heighten the Contradictions, on the grounds that it would destroy the US; and that's an agenda I can understand regardless of whether I accept it. But the current crowd, I honestly cannot tell what they believe.

    (3) the technical crowd (essentially MMT economists). These are people who would very much agree that you can't get something for nothing. BUT you can use what you have more efficiently! They would argue that the *primary* task of money is as a co-ordination mechanism, and that by fiddling with the money supply (and related matters like interest rates and govt debt) you improve that co-ordination across the economy, achieving a combination of
    - cutting off funds being diverted to enterprises that are ultimately less productive than optimal (eg building houses in the wrong place) AND
    - putting to work people who would otherwise be unemployed.
    Insofar as they have to choose, I think they'd agree more with with (A) than with (b).

    Politically (A) are the largest and operate by gut instinct. Their blatherings don't matter because they are disconnected from any sort of analysis or understanding. Each side will switch its story as soon as they enter/exit control.

    (b) are the crowd that dominate Twitter and much of academia. Their agenda appears to be nothing but Punk Politics - complain and destroy about what already exists, with all the fervor and wisdom of a 14yr old, and with zero concern for the consequences.

    (3) are the few adults in the room who (fortunately) mostly get to control what's really going on and who (sensibly) keep themselves out of the limelight as much as possible.

    OK, folks, that's your cast. You can now understand what's going on, both Kevin's complaint and most of the heat rather than light in this comment section.

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