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As a percentage of GDP, government debt is high by historical standards, and it is rising at a fairly rapid pace. That could be a problem if it continues unabated. But there are two solutions: reduce spending and/or raise taxes. Most U.S. federal expenditure goes toward either defense, entitlements or interest on the debt, so it seems unlikely that spending will fall very much. That means higher taxes. At some point, the country will need to find a political reformer who can sell tax increases to the electorate. Until then, the crisis just continues to quietly grow.
[1] Giovanni Arrighi (1994) The Long Twentieth Century: Money, Power and the Origins of Our Times
https://www.amazon.com/Long-Twentieth-Century-Money-Origins/...
there are other solutions, that are more convenient politically than austerity:
- productivity boost
- higher nominal growth through inflation
- financial repression
and in theory there is also the option of defaulting
Cutting spending, means those who would have received that debt spending take a loss (perhaps their job). Raising taxes means taxpayers pay. Raising productivity or inflating the debt means the young and laborers shoulder most of the burden. Financial repression means capital owners pay. Defaulting means bond holders pay.
This is what people who argue the debt doesn't matter don't understand. Sure it doesn't matter in the sense that we could always just roll the debt forward, and continue to make future generations pay. Just as it's possible to choose over and over again to wine and dine at someone else's expense, against their will.
No the debt always matters, because, it's a matter over who gets to benefit and who has to pay.
The UKs threat from adversarys is nuclear, nearly nothing else.
Now the threats to the UKs interests abroad are larger and may necessitate a large military, of course.
Now if USD loses reserve status, that could be very problematic, since the US basically spreads its borrowing costs to the entire world.
30% of GDP would be better, but 100% isn't going to collapse the US economy on it's own.
[1] https://www.pgpf.org/article/how-much-is-the-national-debt-w...
The US dollar was the reserve currency in 1979. That didn't keep borrowing costs down.
We don’t have any serious leaders on this issue. We don’t have scholarship divorced from politics about this issue. Maybe we never will. The Austrian school basically thinks this is the end of the world. The MMT folks think this is business as usual. The Keynesians are somewhere in the middle, but being in the middle of the road politically is not the same as an apolitical view on this.
As a lay person who hasn’t studied economics enough to understand if this is an actual issue or a theoretical issue, I really need some politics-free scholarship on this.
It doesn’t help that our political leaders say it’s an issue, unless it’s their party that wants that spending, then it’s fine. The right says it’s fine as long as it goes to endless wars, and the left says it’s fine when we spend the money on social programs. Both say it’s bad when the other side spends it, but not when their own spends it.
This is exhausting and demonstrably not helping us resolve the fundamental issue of how do you manage a large society without it imploding.
If lenders do nothing, then nothing really matters - keep borrowing and let your debt grow exponentially.
In practice though, lenders, in their wisdom or folly, get spooked when debt goes up. In the Greek debt crisis, it all started with debt in the region of 130% of GDP. Rolling the debt with more debt spiralled away as lenders wanted an ever higher interest.
So US would either need to start really inflating its debt and test the investors patience, print the cash and let inflation run away, or tax and cut spending.
In the first scenario it kind of doesn't matter where the limit is - people sometimes argue about magic levels. The issue is that eventually the debt grows exponentially, so once it's out of control, it will exceed any reasonable level pretty quickly.
Can the US convince the world that their debt is special? I'm not sure. My reading is that investors are already twitchy about US debt, for other reasons for now, but higher debt levels surely won't calm them down.
So really I think the US has no better choice than to keep its debt down.
Lenders are currently doing nothing: that does not necessarily mean they will do nothing forever.
Because should the lender actually do something eventually, the lendee may be in a world of hurt. The borrower probably does not get to the point when lenders start doing something.
Previous similar (but totally different) situations ended in wars.
With money printing or some FED operations I doubt there will be default on principals. It might happen if sufficient political pressure is in place though unlikely. So in the end risk is spiking rates and inflation being foreseen. No point investing on losing bet.
MMT folks generally advocate that inflation is the way to measure if the spending is "too much" and argue that spending should generally aim to improve productivity (i.e. increase gdp) to minimize this issue (e.g. spending to build infrastructure so people can get to work is productive vs spending so people stay home is inflationary).
There is this pervasive idea that MMT promotes limitless spending and I'm not sure where it comes from, what they actually preach feels like a reasonable way to evaluate government spending to me.
Everything can be sound on paper about MMT but if no one is going to practice it properly then the theory isn’t really going to work out.
As much as “eating your vegetables” in terms of government budget policy makes sense, if making people do that in practice gets you immediately voted out of office (or not even elected in the first place), then we won’t be eating our vegetables.
Right. The theory says you can (should?) spend until you hit the "inflation ceiling," then use taxes to drain liquidity.
But what we saw in 2020-2022 was that we hit the ceiling at 100mph. The "tax it away" solution proved to be a political fantasy. No politician is going to hike taxes on the middle class to cool down the price of eggs.
My understanding (I'm not an economist) is that MMT is currently viewed as a "fair-weather theory." It explained why we could spend during a liquidity trap, but offered no viable steering mechanism once the engine overheated.
In my mind, this puts it in the same box as Keynesianism. Both theories are politically convenient because they offer politicians an excuse to pander. But those politicians aren't willing to do what their pet theory would require once the emergent crisis has passed.
Except that 2020-2022 was not (completely) about fiscal/monetary problems that could be fixed with fiscal/monetary solutions. A good portion of the spike was because of 'outside' factor(s), e.g.:
* https://en.wikipedia.org/wiki/Russo-Ukrainian_war_(2022–pres...
What would extra taxation do to help that? There are various types of inflation, categorized by 'root cause', and 'too much money' is not the source of all of them:
* https://en.wikipedia.org/wiki/Inflation#View_post-2000_to_pr...
* https://en.wikipedia.org/wiki/Cost-push_inflation
The 2020-2022 inflation spike wasn't due to following MMT based spending policies though. Slamming the brakes at 100mph may certainly have bad consequences, but driving at 100mph in low visibility conditions was the problem, not braking before you hit something.
The fact is everyone knew the combination of supply chain disruptions, remote work, and the changes in spending habits would eventually produce inflation, and yet we kept pumping money in. Every economic school would have advised against that course of action. MMT only calls for spending to keep pace with economic growth, not to run the money printers as fast as you can.
Economic theories, like scientific theories, are successful if they correctly predict what will happen if you do X. If the theory of gravity predicts that you will fall to your death if you jump off a cliff, it's not a failure of the theory of gravity that it doesn't tell you how to levitate after you've already jumped.
Spending is only one part. The part that almost nobody wants to touch is raising taxes to support the spending.
But stories are much more fun than data, and we put everything on the credit card, and here we are.
So whether an executive makes campaign promises, takes credit for signing the bills into law, or championing the bills and advocating that Congress pass them, it is ultimately Congress--the House with the Senate--that has done these things with taxes and the budget.
The second and greater difficulty is that realizing that a solution that is politically untenable is not a solution, it's a campaign slogan. I don't know how we get people to move past this difficulty.
I'd prefer to use that money for "progressive" things like schools and libraries and parks (voted in 2024 to increase my own taxes on those things specifically, but my neighbors voted against them), but I'd even settle for spending it on the military if it came out of the pockets of the oligarchs to reduce inequality.
NYC passed their pied a terre tax. Even federally, at least some in congress are trying to push for new taxes. Taxing the wealthy is the most popular way to lower the debt.
https://jayapal.house.gov/2026/03/26/jayapal-warren-boyle-45...
https://thehill.com/business/economy/5554777-gallup-poll-nat...
Let me clarify: Few in the mainstream of current politics and media want to discuss higher taxes on the uber wealthy (1B and up) - much less the very wealthy (100M and up).
It's only happening in a few places at the state and local level, but that's challenging because of the ability of the wealthy to move residence between states (something the pied a terre tax cleverly works around).
It also seems to have a lot more purchase these days in forums like this. My comment above about raising taxes would likely have received much more opposition 10 years ago. It seems like the consciousness here has shifted, probably because many here have a front row seat to the emergence of the tech oligarchy.
One step past there, of course, there is no more unity. Can we just run a deficit forever with no consequences? I have a profound distrust of free lunches, but I can't prove that MMT is false. I'm almost certain that it is, but I can't prove it to the satisfaction of anyone who believes it.
But even if you don't believe MMT, then what? Can we keep going a while longer without too much damage? Should we?
And if not, then we have to cut some things or raise some taxes or both, and that's where the political trench warfare starts.
Money has always been a social construct. There is no fundamental particle of currency.
The fact that you want to study economic processes because you want to e.g. better the live of the poor half of society does not mean you can't apply scientific principles. But the results will not necessarily be applicable for those who think a rising tide lifts all boats and therefore want to develop the economy in the interest of the upper class.
In fact I'd be suspicious if people claim to be unbiased in any field that even remotely has something to do with humans or society - it usually just means they either hide their interests, or aren't aware of their biases.
Jacques Necker tried to restore investor confidence by publishing the Compte rendu au roi in 1781, which hid key expenses. This allowed the king to continue borrowing but did not fix the fiscal crisis.
Attempts at tax reform failed due to resistance from the nobility and the clergy who paid nothing, leading Louis XVI to convene the Estates-General of 1789. Which triggered a series of events leading to the revolution.
Revolutionary leaders seized Church lands and issued assignats to fund the state, but overissuance caused inflation. More durable financial stabilization came later under Napoleon Bonaparte through institutional reforms and, in part, revenues from military campaigns. He looted much of the wealth of the Italians who he “freed” from the Austrians.
The insight I get is that the debt is similar to NIMBY. Local interests benefit from an ever increasing debt, but collectively we are all hurt by it.
It's impossible to discuss GDP without politics, could you describe exactly what it is about political discussion that you'd want to avoid?
It would seem that functionally the only real world impact would be spending more money to service that debt.
Ok, what about just cancelling that debt? Some economists have said “it’s money we owe ourselves”, so why not just forgive ourselves of our own debt? What would be the real world impact? What would happen?
We keep attaching political value judgments to this without reasonably discussing the practical implications free of our own political dogmas.
It's tied to Treasury Bonds that people hold so they would become worthless.
It's not money we owe "ourselves", it's money we owe each other. When you buy government bonds you're lending money to the government. Cancelling the debt is just stealing the money everyday people and investment institutions have lent to the government. What would happen is people would lose a huge portion of their investments and pensions and it would be catastrophic.
Honestly it's wild to spout an opinion in this thread if you don't understand this.
Now, keep in mind that "business as usual" is different from "not an issue". The MMT folks will be able to tell you exactly what the consequences are (a hint, they are not very different from when it was 95% of the GDP), while the Keynesians will rush to tell you that the stuff the MMT people are talking about isn't as important as other stuff the government could be doing. Notice that both can be correct at the same time.
Empirically, at some level of inflation the Keynesians become just wrong. Most people usually stop being Keynesian at that level.
Yes, MMT is largely based on Keynes ideas, so they will say a lot of the same that Keynes actually said.
At the same time, "Keynesianism" is more of a political movement than a scientific school (although, it's a well informed one). That's why they can be right or wrong independently from MMT. "Monetarism" is also a political movement, that people often confuse or try to claim to be the same as MMT.
MMT seems to be 'always "print"' and then tax. Keynes is more about induce demand by government when it's needed:
> I would summarize the Keynesian view in terms of four points:
> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
* https://archive.nytimes.com/krugman.blogs.nytimes.com/2015/0...
Now most governments run deficits in the modern world, and that is "fine" as long as borrowing costs/rates are lower than inflation and/or economic growth. And that you should generally be spending on things that helps raise productivity or induce economic growth.
Things like tax cuts generally don't do this:
* https://en.wikipedia.org/wiki/Kansas_experiment
Unfocused military 'forays' also tend not to do this.
Does this still have purchase? I thought following post-Covid inflation, the MMT folks took a backseat (in politics).
Jason Furman: No”
Covid really exposed who did and did not understand what they were doing.
Who, in your reading, is the dummy in that exchange? (And what does it have to do with MMT following post-Covid inflation.)
None of these systems work if you only take a part of the system! Any of them would probably be viable, implemented properly with a good understanding and fine adjustments to account for reality, but you can’t mix and match!
Nobody's going to make the mistake of blowing off inflation as an abstract concern again.
The challenge with this problem set is the timeline is tricky. At some point the bridge can only handle so much weight before it buckles and collapses but we don't know how strong the bridge is and we have no way of measuring it.
MMT is the equivalent of saying the bridge doesn't have to worry about physics because (a) we said so and that the (b) bridge hasn't broken yet so its fine. It is a bad economic philosophy.
It's a garbage economic theory - strictly to justify greater spending from our politicians. In time it will be proven out to be a failure of human thinking - it is a siren call.
The MMT folks think that, when inflation gets high, you need to raise taxes to take money out of the economy. The fatal flaw in that is raising taxes is politically impossible.
Like, you say the two sides are the same because one wants to spend endless money on wars and the other wants to spend endless money on social programs, but we only ever spend endless money on wars. There's no spending comparable to war on poverty / illiteracy / sickness / homelessness.
Some of this is political, but Trump especially wildly makes a mockery of Republican supposed deficit hawkishness, not based on ideology, but by lack of a competent cabinet.
And like a CEO, the President tends to get credit for everything.
To oversimplify, basically:
With the exception of Social Security, we (the US) has a balanced budget. No politician will get re-elected if they cut social security. (Thus) the politicians are working on the problem very quietly.
The general problem with Social Security is that it pays out way more then it takes in. Part of the issue is that everybody of retirement age collects social security, including multi-millionaires.
Quick random googling, I’m seeing the number 3.2% of retirees have more than $1m
https://www.investopedia.com/how-many-people-really-achieve-...
And I can’t imagine social security would become suddenly profitable by a <3% population delta
As an analogy: do you think that Costco generates most of its profits from sales of goods or from membership fees? Both answers seem valid.
> The Freakonomics podcast
Yikes.
FWIW, for every dollar given to people for social programs like the child tax credit, they spend $1.50-$2 locally. This seems fine to me & it was popular country-wide. Meanwhile, we've gained nothing from the Iran war. We've obviously lost money and probably weakened our global standing and strengthened some of our enemies. It is also unpopular with the people. You don't have to "both sides" every issue. You can assume republican leadership is generally bad and don't have to give them the benefit of the doubt on issues you're not studied on.
https://www.ncsl.org/state-legislatures-news/details/tax-cre... https://economicsecurityproject.org/resource/public-opinion-...
Stopping spending kills the economy. Which kills tax income. Which puts far more stringent limits on spending. Which reinforces the need to stop even more spending.
It is really not necessary to knee jerk bothside everything.
He passed tax cuts (which are the real debt driver) that are just not sustainable. Without those, we have a reasonable debt to GDP ratio.
Its like saying that uncle bob has a ton of credit card debt because he doesn’t make enough money and not because he spends too much.
Whilst I understand your point in isolation, I don't understand how it refutes GP.
AFAIK, the current US administration has cut spending on most things (the military and ICE being notable exceptions).
As such, the suggestion that the ballooning debt is due to tax cuts seems perfectly valid.
It's very much political and it's a joke to pretend otherwise.
But just implement balanced budget goals. Accept at most a deficit of 1% in the budget or whatever. Allow for a deviation from this to do QE but require a more qualified majority and limit to 1 year only.
Want to cut taxes? Fine - but don't do it with deficit spending. Want to increase welfare spending? Fine - but remember to then cut somewhere else OR increase taxes.
The fact that one side can implement large tax cuts funded by borrowing over and over (and still be elected again) is absolutely _crazy_ on a scale that is perhaps only rivaled by the healthcare system.
You can play the twisty game but the fact is simple - if he didn't have the political capital to cut spending, then cutting taxes is irresponsible governance.
Cutting welfare spending will get us no where. The majority components of the federal budget are Defense, SS/Medicare/Medicaid, and debt payments. Not the forestry service or what we commonly know as welfare. At this point, even cutting everything else to zero still lands us in deficit. (Unless taxes are raised.)
To be serious, we need to talk about what cuts are to be made to SS/Medicare/Medicaid and the military. But no one wants to have that discussion. So we throw out meaningless issues like welfare and the forestry service. We quibble around at the extreme edges, never addressing the central problems. That's the essence of the politics being discussed. Those politics make the issue impossible to fix.
I honestly don't know why it's so hard? I'd be totally willing to countenance the necessary cuts to the sacred cow programs at this point. Why is everyone so opposed to it?
You can see this here: https://www.pgpf.org/article/chart-pack-the-us-budget/
These aren't serious people. The institution itself is damaged beyond all belief by this nonsense. We capped the number of seats in the house because ... we ran out of room for seats? Again, not serious people, not leaders. Spoiled children who sit on top of a hill deciding the outcome of our lives like they're toys.
We need to begin again.
I'll give you a brief TL;DR on the issues.
The wealth of a nation is based in its ability to produce primarily goods, and sometimes services. Pricing is a signaling mechanism that allows efficient resource allocation of both goods, and factor market labor.
When misallocation results, you get things like busts and booms where the benefits are front-loaded and a resource exhaustion cycle takes place. There are constraints which cannot be breached for any length of time, such as wages being lower than the cost of living enough to support a wife and three children to 18, and other things. Legitimate business can't operate if it can't make a profit.
There is silently nationalized industry that is unconstrained via a cycle of money-printing that has sieved assets into few hands, and risk concentrated in few hands. This is part of the danger of the ECP, and other fundamental failures related to centralized systems.
The Austrian school lives in the future. The future under a breakdown of organized society is one of death and potentially extinction. We depend on food production in ecological overshoot which depends on technology and farming. The 1970s represented ecological overshoot. When that fails you get shortage, that then sustains, famine, slavery, death, and then extinction.
Under socio-economic collapse everything fails. Currency is abandoned. Exchange cannot happen. The store of value and exchange of value fails. This happened during the Bronze Age (of which we have very little records that remain).
If these happen for extended periods of time, capital dries up and you get something like the great depression, Nintendo, and other places where logistics refuses to deliver goods at any potential profit because they were burned too many times.
There exist systems that will fail eventually and predictably (in general), but which you cannot predict specifically when those failures will happen, its unknowable, and the effects one would use to justify any decision lag behind the objective indicators of the actions that needed to be avoided.
Money-printing extracts value from those that hold the currency through the cantillion effect. Its an extraction of unpaid slave labor. Eventually it exceeds the store of value, and the businesses that normally produce stop producing. Exchange stops, etc. AI presents a unique spin on this as well because it accelerates the corruption of signalling presenting false signals chaotically in both labor and good markets.
In positive feedback systems, these type of systems commonly run-away and converge at a point of calamity. When they do the dynamics are unstoppable.
The MMT folks are delusional, having rested quite a lot of their false justifications on unsound practice to justify extraction of value.
The Keynesian's aren't so different from the MMT folks because they improperly look at certain things only in isolation with a seeming mental block to all other things, which is a form of false justification.
The bankers (if you can call them that) have corrupted leadership, and enabled sieving through non-reserve debt issuance. The mechanism over the years is leveraged buyout. The business cycle today largely runs on the ponzi cycle with debt issued upfront providing benefits upfront, followed by enshittification as the resource exhaustion cycle runs its course.
Chaos is fundamentally destructive. Large societies don't implode when they have stable stores of value, a rule of law (not by law), and manufacture goods their populace needs.
Market dynamics fundamentally fail to operate as a market under slave labor as a function of the cost function for the majority of participants. It doesn't matter if that labor is provided by a foreign power with costs socialized, or stolen through the currency through deficit spending. When you cannot know correct prices, everything falls apart at fundamental levels but you don't see it until its too late after which point the only thing you can do is start over; but existing structures under such systems seek control to the point of extinction.
No one gives power up willingly, and those that have it seek to destroy the ability for others to take it.
You can't ever make a consensus when a good portion of the people part of that consensus have become delusional, often without them even realizing it.
Maybe decide if the right or left has better priorities. Do you think spending money on guns and war like the right is good? Do you think spending money on social programs to be good? Seems like an easy decision to me, but hey, i have empathy and don't like killing.
Default itself will cause massive inflation, default is not a way to prevent inflation.
Debt is in dollars, GDP is in dollars per year.
Miles per gallon is another example. It's a useful number.
"GDP" is just a measurement of economic activity. It is not a measurement of income. It is not government income. It is not even government cash flow.
Income through taxes is roughly a percentage of GDP.
You could also just compare interest spending vs budget, and lots of people do. Spending on interest is roughly $1T out of a total $7T with income of $5.23T
$1T of an incoming $5.23T is pretty concerning. Especially given projections that the $1T is likely to go up significantly over the next decade.
Its good as a rough score to do relative comparisons between countries (and actually Debt/GDP is useful in that sense too), but as an absolute amount it doesn't mean all that much.
What matters is how much the debt servicing costs versus government revenues. Also how much that debt is growing (deficit) and/or what it would cost to reduce it.
But there's not much of a consensus around what is too much or too little.
I suppose 100% Debt/GDP is a good arbitrary number to raise the alarm, but it doesn't mean much on its own.
This ratio isn't just better because the units match, you don't have to adjust the units for growth and inflation.
https://en.wikipedia.org/wiki/Triffin_dilemma
The US public debt-to-GDP ratio peaked at 106% in 1946 following WW2. Next year the US will likely match or exceed that, imo.
So you mean rich people, for whom loans are easy to get so inflation always works in their favour
[1] https://fred.stlouisfed.org/series/GFDEGDQ188S
Does not matter as long as they control the printing press for the reserve currency of the world.
What will they do if it was repaid
Why do people keep lending money to the US government if they think it's a problem
They can request their money back, refuse to purchase future bonds, and if things get really dire, potentially go to war with the US (Don't worry, this is beyond unlikely).
Historically lending money to the US government has not been a problem. It's been a low earning but guaranteed return. Many of those loans have very long terms, and so even if it's a problem today, it wasn't when the loans were initiated, and it might not be when loans issued today come due.
Government debt is not like personal debt, for a lot of reasons that I am not smart enough to explain.
Ch-eye-na
Somewhere around USD700B. Of the USD39T, that's obviously not that large of a lever.
Pretty sure the Chinese have been implementing a policy of diversification at a minimum. (Probably a more likely explanation is they are implementing a policy of delinking and not just diversification, because the share of US Treasuries they seem to be willing to hold keeps dropping.)
About 90% of Japan's debt is held by Japanese themselves, so it's much more insulated from a crisis that can't be resolved through domestic economy policy. (It could in theory print its way out of it.) Whereas about 25% of US gov debt (which is 3x Japan's in nominal terms) is held by foreign governments, including very large amounts by China. This, combined with the US being the main currency used for international transactions, gives those countries leverage over the US economy (though selling off the treasuries would impact their own holdings as well), and conversely means that US monetary policy has a global effect.
And there will be no consequences since we're the reserved currency for the world backed by the most powerful military in human history.
Indeed
> And there will be no consequences since we're the reserved currency for the world backed by the most powerful military in human history.
Yup, and it works until you're not the reserve currency anymore, which ... happened before quite a few times (Dutch guilder. French franc. British pound)
But hey, this will be in what ? 50 years ?
Half of us will be dead by then, so who cares?
Recently, President Trump seemed to cosplay as Jesus. In that case, could he also die carrying America’s economic original sin and thereby cancel the U.S. national debt?
Including banks and pension funds, all of which would go broke overnight if the U.S. actually defaulted.
It’s mighty clear he can do whatever he wants, and spend huge sums of money doing it.
I dont think I'll ever understand how this isnt regarded as just fanfic.
He had to do this because although He is omnipotent and omniscient, He was unable to forgive us without literally pinning our sins on His Son Jesus (who is also God) and then letting us kill him for it.
It makes perfect sense and has no contradictions when someone teaches it to you every Sunday during your childhood.