The need to eliminate U.S. national debt has become an almost religious mantra in Washington, D.C.
Republicans, who created most of the debt during the Reagan administration, tell us that paying down the national debt must be a higher priority than social spending.
That’s nothing new – the average Republican thinks that absolutely anything, up to and including a tax cut to finance a new swimming pool for Bill Gates, is more important than social spending.
What’s odd is that nowadays the Democrats seem to agree with the Republicans. Leading Senate Democrat Tom Daschle mentions the debt in virtually every public appearance, and he’s not the only one. To hear the Democrats talk, the national debt is the biggest domestic problem in America today. But is there any reason to think the debt has such importance?
As of 2000, the federal government owed $5.6 trillion dollars in debt. However, $2 trillion of that debt is money the federal government owes itself. The social security trust fund, for instance, is counted in the federal debt, but it’s really just a case of the government’s right hand lending the government’s left hand money. Such self-owed debts aside, the remaining debt is about $3.6 trillion dollars.
That sounds like a lot of money, but on the scale of the enormous American economy $3.6 trillion is not that much.
In fact, our debt is less than 40 percent of our gross domestic product (GDP), which is actually rather low by international standards.
For comparison’s sake, consider our European competitors. In France, Germany and Spain, the national debt is 60 to 70 percent of GDP. In Italy the national debt is over 100 percent of GDP.
Nonetheless, isn’t borrowing money an inherently irresponsible thing to do? Wouldn’t the United States be better off not owing any debt at all? Not necessarily. Borrowing money can be the smartest thing to do when the borrowed money is invested wisely. On a personal level, for example, Americans often hope to build for their futures by borrowing money and investing it in a house, an education or a business.
While going into debt to pay for bar-hopping is foolish, borrowing money to improve our long-term prospects is just sound planning. The nation has, or should have, similar priorities.
A variety of investments in education, from increased funding of Head Start to more generous grants for college tuition, would improve the United States’ long-term outlook by increasing the productivity of our workforce. And investing in long-term business projects, such as research and development of renewable and sustainable energy sources, could reap benefits for decades or even centuries to come.
Nor would America be better off owing no debt at all, as many of our leading politicians have suggested. The national debt exists in the form of U.S. government bonds, which are sold to investors. U.S. bonds are often the first choice of investors looking for a safe place to put their capital, especially during times (like now) when the stock market doesn’t seem like a wise choice.
It’s not at all clear that the United States would benefit from denying this tool to its investors. Moreover, buying and selling U.S. bonds is the most effective way Alan Greenspan and the Federal Reserve Bank have to control the size of the U.S. money supply. If the Federal Reserve isn’t able to control the money supply, its ability to influence the U.S. economy – and thus prevent another depression – will be greatly impeded. But if the debt is eliminated, then there will be no U.S. bonds for the Federal Reserves to buy and sell.
One out of every six Americans has no health insurance, and even those with insurance often can’t afford the prescription drugs they need. That these troubles still happen in the wealthiest nation on Earth is not just tragic, but also ridiculous.
The United States, with its huge resources and its relatively small national debt, could afford to address all of these problems. Traditionally, the Democrats in congress would at least make the attempt, but that was before they joined the national church of debt-reduction. We can only hope that the new church proves to be as politically short-lived as it is economically short-sighted.