I have become increasingly frustrated with any discussion of the national debt — equally so with conservative scare-mongering and lukewarm liberal responses of the type “well, the deficit is a really serious long-term problem, but….” In reality, there is no inherent problem with any level of government debt for a country that controls its own currency. It can pay back any amount of debt essentially on-demand. Even foreign creditors have no particular leverage over a country with currency sovereignty: the worst they can do is “threaten” to trade their interest-bearing assets in for non-interest-bearing cash. Foreign debt is only a problem if the debt is denominated in a currency over which the country has no control (e.g., gold, another country’s currency, or the Euro), which is not the case for the U.S.
This claim does not require advanced Marxist theory, but simple accounting knowledge. When the government goes into debt, what it’s concretely doing is selling bonds. The government receives cash for those bonds, and the buyer gets an interest-bearing asset in exchange for their cash. If we look at it from the perspective of the U.S. as a whole, it balances out, by definition, every time. The nation is neither richer nor poorer because the U.S. has issued debt — the government has liabilities, but those are equal to the assets it has created for the private sector. This would be true literally no matter how big the debt became. It’s basic Accounting 101.
The same basic principle applies when we look at the interest payable on that debt. One way the government can finance the interest payments is by going further into debt, in which case the national balance again remains the same. Another way is by using tax revenues to pay the interest, in which case money is taken out of the private sector — and then passed right back to the private sector. The distribution is different, but the net effect is the same: i.e., the national balance is unaffected.
In a capitalist economy, there are two constraints on the government’s debt-issuance. The first is that excessive taxation is believed to hurt economic growth, which is questionable given that the government normally sends that money back into the private sector through spending it. However, whether it is true or not, or under what conditions, is less important than that most policymakers and business leaders seem to believe that it’s true. The second is that increasing the money supply can lead to inflation if it outstrips actual economic growth. Interestingly, however, modern central banks have well-known, time-tested means of controlling inflation. Even more interestingly, they generally carry out their operations by buying and selling government debt. In other words, while government debt creates the possibility of inflation, it is also the vehicle by which inflation is controlled.
Reducing the national debt means taking money out of the private sector and using it to settle up on assets that would have pumped money into the private sector. Now I’m no economist, but it seems to me that if the government takes away the private sector’s money and deprives it of promised future income, that will lead to an economic slowdown. And lo and behold, every time the U.S. has paid off or significantly reduced the debt, a recession or even depression has occurred! In fact, this has happened in living memory, as a recession occurred soon after Clinton and the Republicans bravely put partisanship aside to get the deficit under control.
In short, paying off the national debt amounts to taking money away from people and setting it on fire. The only reason to do it would be if we were planning on gradually winding down the United States economy as a whole so that we could start from scratch, just as the only reason a bank would have to “pay back” all its depositors would be if it were shutting down. After all, every bank owes its depositors literally millions if not billions of dollars! Somebody has to pay that, right?! But no, no one has to pay that back, not on net. Debt is an accounting artifact, a way of organizing flows of money.
Intelligent American policymakers going back to Alexander Hamilton have understood this and have tried to strike the balance of taxation and debt-financing that will best support economic growth and productive investment under their circumstances. Stupid, moralistic American policymakers have not understood this and have therefore viewed government debt in isolation from its important role in organizing a modern economy — leading to pointlessly destructive policy choices that slowed down the economy, put people out of work, and left everyone poorer than they otherwise would have been.
You’d think that after a few centuries of capitalism, people would understand how to run the fucking thing, but apparently not. Hence the need for full communism is all the more urgent.