National Debt

National debt

money the federal gov. has borrowed to cover its expenses

debt doesn’t equal deficit

a substantial portion of US gov. is owned by the US gov.

Episodic drivers of debt

wars in Iraq and Afghanistan

post 2008 crisis stimulus

expansion of medicare/medicaid

pandemic programs

big beautiful bill

any additional spending now will be repaid by future generations

National spending

gov. checks go to:

retired and disabled people - 36%

military personnel, contractors, and veterans - 16%

creditors - 15%

people in poverty - 21%

Systemic drivers of debt

“bundling” to make bills cost neutral like ACA plus subsidizing college loans

rosy projections

Constitutional “Wiring” of Congress

members are elected by parochial constituencies which results in particularistic benefits and universalistic spending

ex: pandemic era programs

Fiscal responsibility is a “third rail”

there’s no magic solution: you cut spending and/or increase taxes but voters punish politicians for fiscal discipling and reward politicians for spending in the short term

ex: disaster relief spending vs disaster prevention spending

Mis-match between short and long term benefits

spending benefits are typically immediate but reducing the debt has long term benefits and short term costs yet longest political office is 6 years

Collective Action Problems

all explanations for the national debt are different versions of collective action problems

Collective Action Problems: when everyone would benefit from a costly action, people free-ride

The National Debt is Fine

37.5 trillion overstates the scale of the problem

fixing the debt isn’t difficult in terms of pure accounting

people have said the debt will cause a crisis and it hasn’t happened

fiscal hawks are just attacking liberal policies

The National Debt is Worrying

interest is crowding out more productive spending

borrowing costs will eventually increase

default is possible and unpredictable

the longer we wait, the worse the policy solutions