Jul 29, 2021
Don’t worry about US debt levels
Debt isn’t a particularly big deal to the US as compared to other problems we’re facing. In other words, it’s not that it literally doesn’t matter, but it shouldn’t be particularly near the top of our priorities.
What matters more is both how much it costs to service that debt (interest payments) and how easy it is to acquire more as we need it. The former tends to be the dominant concern economically, as people tend to be plenty willing to loan to the United States because of our size, soft and hard power, and relative institutional stability over the years.
So you can see in this article from Bloomberg how debt service payments have stayed pretty damn low for the last forty years. In particular, they’ve been essentially flat for the last twenty years, between 1–1.5% of GDP (by analogy, a debt-to-income ratio.) As long as debtors get their interest money, and have basic confidence in recovering investment in an emergency scenario which, incidentally, they’re also confident won’t arise by the same measure, then they’re willing to sit on the issue which is good for us. It also makes them more willing to issue us more debt should we need it.
Now, just like with everyday household finances, that doesn’t mean we go about paying for everything with debt. It’s one thing to use debt to invest in your future, e.g., a car or student loan, or a home mortgage (analogously, infrastructure). It’s another thing to either put your rent on a credit card (analogously, health care or otherwise pension plans) or to quit your job and finance your lifestyle through a credit card (analogously, cutting taxes without cutting federal spending). So we do need to be careful about one-off versus perpetual schemes.
However, the Biden Administration policy proposals have been of the one-off variety. The covid package earlier this year was specifically a temporary thing to help us get out of the pandemic (before anti-vaxxers started trying to ruin it for the rest of us), and the bipartisan hard infrastructure package is similarly finite in scope. If we were to try to expand perpetual health care spending or something, such as is proposed in the party-line soft infrastructure package, then *that* would require higher taxes to stay economically healthy: though only on the wealthy is really necessary.
As an elongated aside, that’s the kind of paradoxical, contradictory thinking you see in a lot of GOP intellectualism, especially of the Trumpian populist variety. Absolutely no taxes, absolutely no debt…but also all of the spending. At least libertarians are notionally more self-consistent in that they also want no spending.
However I don’t think that the overwhelming majority of Americans really want that, however superficially appealing that may seem to avoid paying taxes. We really like our social security payments, we really like Medicare and Medicaid, we really like having the police around (have 24/7 armed security for cents on the dollar!), we really like having well-maintained roads and bridges, etc. That all costs something, and so requires either taxes or debt. Unless we opt for total anarchy, we have to choose something.
