Despite the presumably facetious solution he suggests, Clifford Farmer — in a letter Nov. 8 — seems to assume that the national debt is a problem. This is wrong. Don’t misunderstand: National deficits and the resulting debt could, in certain circumstances, be a problem. But often — perhaps usually — their benefits outweigh their costs.
That’s right, there are benefits from national deficits and debt. First, of course, if we can borrow at a low rate and invest in infrastructure that will yield a higher return, we would be foolish not to do it. (On the other hand, investing a trillion dollars in tax cuts for the wealthy was stupid.)
But consider the function of debt itself. Cash that our economy needs to function is in our pockets because the federal government spent more than it taxed, that is, it printed money to cover deficits. Some level of deficits is essential for making the economy work.
Not only that, but government bonds — otherwise required by deficits — are the only other net source of financial wealth. People like to have net financial wealth and — without it — would feel poorer. A consequence of eliminating government bonds by paying off the national debt — which would require taxing more than spending, thus removing money from the economy — would be many people feeling poorer, who would therefore cut back on spending, crashing our economy. Banks feeling poorer would call in loans, again crashing our economy.
The bottom line is that, because it can create money, a sovereign government with its own currency is not like a household or any other entity.
And — leaving aside government debt owned by foreigners, which is fairly trivial — national debt in the future, just as now, will be owed by some Americans (taxpayers) to other Americans (bond holders). There’s no net debt, so our grandchildren will not be poorer because of it. On the other hand, if we fail to invest in infrastructure, education, health care, etc., we will be less productive and therefore poorer.
A further implication is that when private markets fail to provide full employment, the federal government can always afford to act as employer of last resort, offering funding to states, localities, nonprofits, etc., to hire workers — at a livable minimum wage — to do work that is otherwise not getting done, of which there is plenty.
— Rick Wicks
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