I cannot stand scare pieces about the national debt. Instead of educating people they largely seek to scare them with big numbers and piss poor economic analysis. They're ignorance and fear masquerading as responsible, somber thought which need to be dismissed at every opportunity.
Now that we have a new president, there's been a rash of these pieces lately. Business Insider has one, so does Forbes. For an illustrative example, we'll focus on ProPublica's story about the national debt under the Trump administration. The gist of the article is that Trump insisted he would pay down all of the then $19 trillion debt over the course of eight years. Instead, he increased it by almost $7.8 trillion, which will squeeze our budget for years to come.
All that sounds terrible, right? The idea that we're almost $28 trillion in debt sounds catastrophic when $2,000 in unpaid medical bills could prevent you from getting a place to live or buying a car. But do me a favor, go read that article, come back, then tell me who, exactly, lent us all that money.
Having trouble? It isn't your fault. The article is deliberately vague about just who the United States owes such a massive debt to. Which is odd, considering the supposed point of the piece is to give people a clearer understanding of why the debt increase is a problem. The closest the article gets is mentioning that interest payments on our debt remain low because the Federal Reserve is purposefully keeping rates low.
Why is that detail important, though? Does the Federal Reserve lend the government money?
Well, no.
What happens is the Treasury department issues Treasury bonds, which the Federal Reserve buys, depositing the money into the Treasury's account, and that's the birds and the bees of how money gets made. So what does that have to do with debt? Well, the Fed is part of the government but technically not. It's sort of its own independent thing that exists outside any of the three branches of government but operates with their authorization.
All this adds up to the fact that when the Fed buys those Treasury bonds, it goes down as an asset on their balance sheet but as a debt on the Treasury's. One man's asset is another's obligation, and all that. The interest rate thing comes into play because the Fed sets the baseline interest rate that everyone uses for mortgages or whatever other loan you can think of. It also means they set the rates for government bonds and debt services, including the bonds they buy from the federal government.
Looping back around, this means all the concern about the debt is getting the vapors over how much money the government owes to itself. When you see that, it suddenly gets much harder to understand what the big fucking deal is.
To be fair, the article is thorough in that it remembers to throw in a bunch of scary sounding statistics about the deficit, too.
We're given all kinds of terrible sounding news about how Trump's tax cuts blew a hole in federal revenue which that our ability to pay back our ever increasing debt is hamstrung by the fact that 62% of our budget is tied to mandatory payments for programs like Medicare and Social Security.
This is as good a time as any to point out that federal deficits aren't a bad thing. We think of them as inherently terrible because we associate them with our own finances and figure that if we spend more than we earned for too long, eventually the creditors will descend like locusts to strip us of everything we have.
Except, the government isn't a family. Or a business. Insisting that we perceive the government solely through those lenses is a failure of imagination which hobbles our ambitions.
So if the deficit isn't a signal that we're hemorrhaging money, what does it tell us? In short, the deficit is the amount of money the government leaves in the economy. For example, if the government spends $200 for a service, then taxes back $80, it's leaving $120 in the economy to circulate. It goes down as a shortfall on the government's budget, but that $120 is real money burning a hole in someone's pocket. If the government had a balanced budget any economic activity generated from government spending would be negated. Everything it spent would just be taxed right back, canceling everything out. A surplus is even worse because that means the government is extracting value from the economy rather than adding to it.
That's not to say that all deficit's are desirable. Tax cuts for the rich, for example, are bad not because they lower government revenue, but because it transfers more money to the already absurdly wealthy. By leaving literally billions of dollars in the savings and investment accounts of wealthy individuals and companies, the government is essentially leaving that money to rot. There's no way any one person or entity can use the ridiculous surpluses of cash they have on hand which makes that money effectively worthless because it's not circulating or doing anything except generating interest payments.
For deficits to be effective, they have to come through the government spending money on projects that increase employment or give money to people directly, or both.
Governments are vehicles for wealth redistribution and deficits are one of the mechanisms it uses to accomplish that. It's good policy to pry that money out of the hands of the ultra rich because all they really do with it is tax avoidance and money laundering.
Letting 90% of the wealth concentrate at the very top .01 percentile does more harm, fiscally, socially, and economically, than a deficit ever will, but you wouldn't really know that. Questioning the validity of private wealth is out of bounds here, a sign of moral and mental corruption if not outright failure.
We all know something's wrong with this country. At this point, that's undeniable. Doing something about it means spending the money to change everything from the ground up and haul our backward asses into the 21st century. But if we do that, then the power dynamics of the country change, which means the rich and powerful aren't as rich or powerful as they could be. So we're stuck with these idiotic, incoherent pieces that do everything they can to convince you that government debt and deficits will bring about inescapable ruin.
And yet, the sky never falls. We should take the lesson in that and maybe, just maybe, finally learn we don't have to be afraid all the time.
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