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OK, we get it: The Star Tribune Editorial Board believes federal government budget deficits and the national debt are big and bad (”Fix U.S. budget for short, long term,” Jan. 12). The certified public accountant’s letter (“Way too many zeros,” Readers Write, Jan. 13) attests to his agreement. However, this economist does not agree.
And even if these numbers seem high, the problems with reducing them could be far worse. Finally, any type of “debt ceiling” espoused by the Editorial Board invites further government dysfunction of the type they wish to avoid.
First, never look at the zeros. For example, suppose in one year, government spending is $10 trillion, revenue is $8 trillion, and the deficit is $2 trillion. In another year, government spending doubles to $20 trillion, revenue doubles to $16 trillion, and the deficit is $4 trillion. Oh wow — the deficit doubled. Nothing to be alarmed about here though, as nothing “real” has changed. Same with the national debt. Don’t just count the zeros. Always compare the size of the national debt with GDP; i.e., debt/GDP. Doing so adjusts for inflation and other price distortions while addressing the capacity of our nation to produce and generate income with which to repay the debt.
Next, ask what is so bad about government borrowing. Most of it is owed to inter-U.S. government agencies and the American public, largely to retirement savings and Social Security. What is so bad about that? And the interest on the debt? It goes to those same people and agencies that lent the money in the first place.
Third, please don’t compare the government with a household. Unlike households, the federal government can borrow indefinitely. When debt comes due, the government “rolls over the debt,” borrowing from someone to repay another. You and I cannot do that. The federal government can.
Fourth, what is the money being used for? If it is for a palace for a king, this will not enhance the nation’s productivity or the well-being of its people. If it is used for investments in infrastructure (physical capital), such as mass transit and electric vehicle charge stations, it can be very productive. Similarly, if invested in human capital (education, training, health care and income support), it can also be very productive. Alternatively, if used for trillions of dollars in tax relief for profitable corporations and the rich, I don’t see a lot of enhanced productivity.