Some Uncommon Sense About the National Debt Robert
Some Uncommon Sense About the National Debt Robert Coen Emeritus Professor of Economics Chicago Area Mensa May 30, 2020
Common Sense About Debt Live within your means Debt must be repaid Debt is burden on future generations
Deficit and Debt: Definitions Deficit = Outlays – Revenues 2019 Deficit = 2019 Outlays – 2019 Revenues Deficit measures borrowing required in 2019 Debt = Accumulated Deficits 2019 Debt (eoy) = 2018 Debt (eoy) + 2019 Deficit Debt measures total amount owed at end of 2019
How Big Is the National Debt? $trillion, Dec. 2019 Gross federal debt - what government owes itself 23. 2 -6. 0 Publicly-held debt 17. 2 GDP 21. 7 Publicly-held debt, % of GDP 79
We didn’t “repay” WWII debt 1946 1974 Federal debt ($bil) 242 344 GDP ($bil) 228 1, 549 Ratio (%) 106 22
Life-Cycle of Personal Saving and Debt
Why National Debt Is Not Like Personal Debt ● Nation is immortal Debt does not need to be repaid ● Income grows forever Debt capacity grows over time ● Internal debt is not a net debt of the nation We owe to one another ● National government can print money
Why US National Debt Is Not Like Others ● US gross debt not excessive
General Government Gross Debt, 2018 Percent of GDP Like nations Some others Japan 235 US 104 France 98 UK 87 Germany 62 Sweden 38 Greece Italy Portugal Belgium Spain Canada Source: IMF, World Economic Outlook Database, Oct. 2019. Japanese data for 2017. 185 132 120 102 97 90
Why US National Debt Is Not Like Others ● US gross debt not excessive ● Foreign-held debt is not excessive
How Big Is the National Debt? $trillion, Dec. 2019 Gross federal debt - what government owes to itself 23. 2 -6. 0 Publicly-held debt 17. 2 - what we owe to each other External debt (owed to foreigners)* *Estimate. September 2019 was 6. 8. -10. 2 7. 0
Why US National Debt Is Not Like Others ● US gross debt not excessive ● Foreign-held debt is not excessive ● US a good credit risk Debt cost comparatively low
Why US National Debt Is Not Like Others ● US gross debt not excessive ● Foreign-held debt is not excessive ● US a good credit risk Debt cost comparatively low US taxes comparatively low
Comparative Tax Burdens, 2018 Total Taxes as % of GDP France Sweden Germany UK Japan US 46 44 38 34 31 24 Source: OECD, Japanese data for 2017.
Why US National Debt Is Not Like Others ● US gross debt not excessive ● Foreign-held debt is not excessive ● US a good credit risk Debt cost comparatively low US taxes comparatively low ● US is world financial anchor Dollar widely used and trusted US borrows in its own currency US debt desired as safe investment
What Is a “Fiscally Responsible” Budget Policy? Allow automatic stabilizers to work Add discretionary measures as needed Balance budget over business cycle? Long run: Keep ratio of debt to GDP stable Meet responsibility as financial anchor
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