There are many, many things to worry about in the world right now. An autocratic madman might use nuclear weapons in a war in eastern Europe. Climate change is disrupting life across the planet. Another autocratic madman is threatening military action against Taiwan. Schools and universities—the students who attend them, and the adults who teach at them—are being targeted by culture warriors who attack personal and academic freedom. Yet another autocratic madman has convinced a major political party that the cleanest and fairest election in American history was stolen.
In light of all those threats (and more), we should not fall for fearmongering about problems that do not exist, from the non-existent problem of “groomers” to America’s not-at-all open border. And one of those non-problems is the national debt. Yet there are people who continue to spread panic about federal borrowing, leaving it to people like me to push back again and again.
And I should note that, in an odd way, writing about this is enjoyable to me. We truly do not yet know how to respond to the many problems that I listed above—indeed, several of those problems could destroy us before we can get our collective act together to stop them—but the national debt is simply not a problem at all, much less a difficult problem to solve.
In addition, this is in my comfort zone. I find myself in a position where my core academic competency is politically relevant, and I am clearly on the right side of the debate. I have been engaged in these arguments for my entire career, and although it is frustrating to have to go back over well-plowed ground (again and again and again), there is no danger that the other side somehow has finally found a winning argument. They are, if anything, even more desperate to make something out of nothing.
I thus feel the warm glow of making winning arguments about debt and deficits that are familiar and right, even as the rest of the issues with which I engage are becoming ever scarier as we move into an uncertain future.
The other reason that I find this an enjoyable topic to write about is that it allows me to be honestly optimistic. When I write or give speeches about many other topics—most significantly the impending death of democracy, in the US and possibly elsewhere—people ask me not to be such a downer and at least to try to offer some hope. On the issue of government borrowing, that is easy. Stop worrying!
Last week, I offered a two–part column here on Verdict: “Why Is The New York Times Giving Front-Page Coverage to Non-News About the National Debt?” Today’s column is not exactly Part Three of that column, because there truly is nothing more to say about that article in The Times that I critiqued (with great enthusiasm). I do, however, want to offer a different way to understand why the national debt is a non-problem.
Rather than looking at it solely from the perspective of the government, we can look at how businesses think about debt. And the simple fact is that every well-run business holds open the possibility of going into debt, and almost all of them do “pile on levels of debt” (to use the apocalyptic phrasing popular among debt hawks). Moreover, these businesses never expect to pay down their debts. If I were to write those words about government debt, people would say that it proved that politicians were irresponsible. Why, then, is it acceptable for businesses to do the same?
The Anti-Debt Propaganda Machine Marches Ever Onward
I should say that the answer to the question in last week’s Verdict column—Why does The Times publish baseless anti-debt propaganda?—has a fully cynical explanation, which is that there is a market for this kind of nonsense. The Times largely sets the agenda for the rest of the American media landscape, and they know that any story about the supposedly super-scary national debt will always generate buzz. It is a topic that seems very sober and serious, it is complicated and intimidating, and it has a simplistic morality tale at its core. They publish stories about it because there is an audience.
One reader of last week’s Verdict column sent me a link to a piece by a USA Today columnist who had picked up the scent of the debt-panic story. Because that particular columnist is a right-winger, she wrapped her story in the standard “vote against Democrats, because they’re burdening the future with their big spending” spin that Republicans love so much. It matters not to them that Republicans were more than happy to ignore increases in government debt when Donald Trump, the Bushes, and Ronald Reagan occupied the White House. It is a familiar political talking point, no matter how baseless, and they love it.
There is no reason to go into any details of that particular columnist’s misinformed musings, because she is merely doing what the debt-panic-industrial-complex is telling her to do: talk about debt by emphasizing the seemingly big numbers, and exploit everyone’s assumption that any debt is just plain bad.
No, I am not being unfair. At one point, after mocking a cherry-picked part of a speech in which President Biden corrected himself, she writes: “Yet that confusion is reminiscent of what I feel when I (a humble English major) try to wrap my head around a number as large as $31 trillion. That’s what our gross national debt topped last week, a record high for the country, and one we should all be concerned about.”
Get it? After invoking her own ignorance, the announces that she is simply dazzled by the very big number that she has been told to repeat; and to be clear, the italics are very much in the original. And because this is a knockoff of an already mockable New York Times piece, her explanations for why “we should all be concerned about” this seemingly big number are incoherent. She offers nothing so much as a pastiche of favorite catchwords from the well-financed peddlers of debt porn: “out-of-control federal spending,” the (nonexistent) threat of “insolvency” for Social Security and Medicare, numbers so big that they “are hard to comprehend” and “that should keep them (policymakers) up at night.”
Again, however, the content of the propaganda pieces does not matter, because the core message remains: Say that the national debt is big and getting bigger, then blame everything under the sun on that one number. If you have dandruff or fallen arches, maybe that, too, is because the federal government borrowed too much money.
If Debt Is Bad, Why Do Businesses Like It So Much?
And that brings us to a key point about the nature of government debt. In my column last week, I made fun of the Times’s statement that the gross debt exceeded $31 trillion “for the first time,” which is echoed in the USA Today author’s mention of debt hitting “a historic high.” (As I also noted, “gross federal debt” is itself a meaningless concept, but that is not important here.)
I argued that it is meaningless to talk about the debt crossing any particular threshold “for the first time,” because when any number rises over time, it is constantly doing things for the first time. Comparing accumulating debt to a person’s advancing age, I noted that no sensible person would have said that the actor Hugh Jackman turned 54 years old last Wednesday “for the first time.” Like everyone else, each day of his life is a record-setting day, where he is older than he has ever been before.
Even so, I did concede that one could imagine that debt could go down. That is, whereas it is impossible—at least within the space-time continuum that we believe we occupy—for time to move backward, a borrower could reduce debt over time if it were truly committed to doing so (and, crucially, if it had enough money left over to pay down principal, after paying ongoing expenses).
That means that the Hugh Jackman analogy is not true, at least in a literal sense. What is true, however, is that the federal government’s debt will never go down—and we should be happy about that. Why? There are several good reasons, but I want to focus here on only one of the most important among them.
Imagine that the economy is otherwise not in trouble, and you are in charge of deciding whether to have the government borrow more money. (If the economy were in trouble, you would definitely want to borrow more, because borrowing less would require increasing taxes or cutting spending at exactly the worst possible time, making matters worse.) How would you decide whether to increase or decrease debt?
You could simply say, “Neither a borrower nor a lender be,” and then start paying down debt. Soon, the really big number would be below the meaningless $31 trillion threshold. Victory! Victory? What would you have accomplished, and how would you have gotten us there? As I noted above, you can only pay down debt if you have money left over after paying for everything else. That means that the federal budget would have to be in surplus for the year. Still sounds good, you say? Be aware that running a surplus means that we are collecting more in taxes than we would need to collect to cover current spending.
Before you can even utter the words “tax cuts,” it should occur to you that this is not a politically sustainable situation, because we would be levying higher-than-necessary taxes on our citizens, who would quickly conclude that paying down debt is not as important as cutting their taxes.
But what if federal spending is chock full of the budget-cutters’ favorite fantasy—trillions of dollars of waste, fraud, and abuse? I challenge anyone to find serious money in those categories (both parties have been promising to find it for decades), but even if we were to find it, we would still only be able to pay down debt if we continue to collect more taxes than we need in a given year. If, for example, we were collecting $200 in taxes and spending $300, with an annual deficit of $100, we could in theory cut spending down to $150 and thus have a $50 surplus. But we would need a good reason to use that $50 surplus to reduce debt rather than to reduce taxes—or to fund other, non-wasteful spending that we had been neglecting.
In addition, the federal government, like private businesses and many individuals, has the opportunity to borrow money to make money. That is, we can run annual deficits specifically to borrow money that we would invest in productive long-term spending programs. That, in fact, is why this year’s infrastructure spending bill had bipartisan support: adding to our infrastructure increases growth, and borrowing to finance infrastructure spending is thus good financial management. Even supposedly anti-debt Republicans know that borrowing money can be very smart—and, although they would never say so out loud, that categorically refusing to borrow money is therefore very … not-smart.
Again, if you were in charge of deciding how much the federal government should owe in debt, what would you do? Even if you could squeeze every last dime of supposedly wasteful or discretionary spending out of the budget, you know that there are always good reasons to borrow money. The alternative is to force people to pay more in taxes than otherwise.
As I noted above, businesses take this to heart. There are a variety of different methods that corporations use to take on debt, but the most straightforward is to issue “corporate bonds,” in exactly the same way that the federal government borrows money by issuing Treasury Bonds (sometimes also called Bills and Notes). As of the end of 2021, total US corporate bond issues totaled almost $23 trillion.
Oh, I apologize; I should say $23 trillion!!
Is that because American corporations are poorly managed? Well, one-third of the corporate debt in 2019 was owed by nineteen of the largest and most successful Fortune 500 companies, including AT&T, Verizon, and Ford Motor Company. Meanwhile, only eleven out of the 500 largest companies have decided not to borrow any money (although they can easily do so at any point, and some surely did during the pandemic), meaning that 489 of America’s largest companies carry debt.
And as I suggested above, none of these companies necessarily takes on debt with the idea that they will retire it later. Unless a company defaults, it will pay principal and interest on each bond until it is paid off, but it will generally roll over its debt (paying off old debt while taking on new debt), almost certainly in perpetuity—just as the federal government plans to do. This is called good financial management. (As an aside, note also that unlike corporations, the federal government has never defaulted on any of its borrowing, and that streak will continue unless Republicans refuse to increase the debt ceiling.)
If borrowing money were always and everywhere a bad thing, would America’s most successful companies do so much of it? I am no apologist for big business, and I do believe that corporate managers can make very bad decisions. That is not, however, the same thing as believing that they collectively have taken on more than twenty trillion dollars in debt for not-smart reasons. Every business school curriculum teaches about “debt management,” and I guarantee that the syllabus does not say: “Pay it all down. End of story.”
In short, even though it would be possible to harm the economy in order to satisfy the anti-debt prigs who receive so much media attention, the reality is that debt—for both government and business—will and should rise over time.
And as I said, this is good news. We do not need to panic when someone tells us that the sky is falling because of historic levels of debt. Every day is a record-setting day for borrowing. Get over it.