“Whenever I write about debt and deficits,” Krugman wrote, “I receive the same letter — OK, not exactly the same letter, but a number of letters with more or less the same gist. They read something like this: ‘If I borrow money from the bank, the bank expects me to pay the money back. Why isn’t the same true for the government? Why can we keep borrowing when we already owe $31 trillion?’
“Just about every economist will reply that it’s misleading to make an analogy between household and government finances. But it seems to me that we often aren’t clear enough about why, perhaps because we don’t say it bluntly enough. So here’s the difference: You are going to get old and eventually die. The government isn’t.
“I don’t mean that governments are immortal. Nothing is, and no doubt someday America will, as Rudyard Kipling put it, be ‘one with Nineveh and Tyre.’ But individuals face a … predictable life cycle in which their earnings will eventually dwindle…
“And lenders therefore demand that individual borrowers pay off their debts while they still have the income to do so. Governments, on the other hand, normally see their revenues rise, generation after generation, as the economies they regulate and tax grow.
“Governments, then, must service their debts — pay interest and repay principal when bonds come due — but they don’t necessarily have to pay them off; they can issue new bonds to pay principal on old bonds, and even borrow to pay interest as long as overall debt doesn’t rise too much faster than revenue.”
There it is: “You are going to get old and eventually die. The government isn’t.”
So every entity who has ever lent you money has an expectation that you will pay your debts. Preferably on a strict schedule. And if you don’t do so, your creditors will come after you. And charge sometimes exorbitant penalties. And never lend you money again.
The government is in a different position. The government’s fundamental obligation is to service the debt. To pay interest. And sometimes to pay off the principal, but, as Krugman writes, the government can issue new debt, sell new bonds, which will work as long as there are buyers out there for those bonds.
And, yes, right now, default is a real threat for the US and that must be avoided at all costs. Default would mean that buyers of new bonds would disappear and the whole apparatus would come crashing down. But default is looming for political reasons. Not for economic reasons.
In practical terms, the extreme anti-government right would love to see the government crippled because that would end the government’s ability to fund change. The kind of change that in the past once kept the cost of a college education affordable for large numbers of people, poor people, and make it affordable once more. The kind of change that funded the expansion of public transit decades ago and allowed poor folks to find affordable ways to get to and from work. The kind of change represented by last year’s misnamed Inflation Reduction Act, which is actually the most significant government effort ever to target the climate change crisis and which will dramatically increase government investments in green energy. And in doing so invest in new jobs across the country. The kind of change that could threaten existing power relationships and dethrone incumbents for whom the status quo works nicely, thank you.
Of course, the size of the national debt is not inconsequential. As a line item in the country’s annual budget, the interest expense will be almost $650 billion in 2024. But spending for the military in the same year (including the portion of the military budget that is buried in the Department of Energy and other departmental budgets) will be more than $2 trillion in the same year. Education spending, which might well be cut in any debt ceiling compromise negotiated between Republicans and Democrats will hover between $60 and $70 billion, at best. So, sure, one could argue that annual interest on the debt comes at the expense of spending for other social programs, but one could make the same argument about $35 billion in federal farm subsidies, most of which goes to large agribusiness.
The point is that the national debt isn’t the problem. National budget priorities are. To address the issue of debt discussions that absorb so much rhetoric in a time of escalating climate crisis, increasing inequity and widespread attacks on the rights of sexual, racial and ethnic minorities, it’s past time for a national discussion of what we actually want government to do. And if anyone says that they want to balance the budget and reduce the debt, tell them to get serious.
