Conservatives' Lies About the National Debt -- and They Are Indeed Lies -- Have Tragic Consequences

There is a truly bipartisan consensus in the US on one issue, a consensus that is demonstrably -- even trivially -- wrong but that harms millions of people.  All Republicans and far too many Democrats performatively rail against the supposed evils of government borrowing, their piety exceeded only by their irrationality.  This consensus is a tragedy, and it is why I have taken to echoing Paul Krugman's use of the term Very Serious People (VSP's) to describe the DC insiders and wannabes who know exactly nothing about public economics but who are proudly unwavering in their certitude that the federal government is sending us all to hell by taking on excessive debt.

Yes, there are other policy areas in which we see similarly unfortunate American bipartisanship, notably in foreign policy (particularly regarding the Middle East), and a predictably ugly groupthink forms whenever it comes to military invasions.  A barely known Barack Obama was able to take down Hillary Clinton, who was the favorite of the party's insiders in 2008, in very large part because he had the good luck not yet to have been in Washington when the votes were taken to validate George W. Bush's lies to justify the second Iraq war.

Admittedly, I might think of anti-debt mania as Public Enemy Number One because of my professional interests as a fiscal policy specialist.  Maybe there is a spirited argument that could convince me that one or more other policy areas are even more consequential.  In any event, I need not fight that fight here, because there is plenty wrong with the US conversation about deficits and debt, no matter where it ranks in the pantheon of destructive foolishness.

Why bring this up now?  First, as I will explain shortly, it is always the right time to push back against the deficit scolds.  And second, we should not forget that this background conventional anti-wisdom drives real-world tragedies like the current federal government shutdown.  Republicans constantly rail against government "waste," and Democrats are too timid to fight back -- unless, as I suggested above, they are not timid but in fact are just as ignorant and lazy as Republicans are when it comes to this issue.

A Dorf on Law reader contacted me recently to ask about people who, in his words, "disagree that the national debt is a problem."  He was referring to me, which is somewhat inaccurate (as I explain below) but in the main is wholly fair, because I do spend most of my time emphasizing all of the ways in which the standard frenzy about debt and deficits is all wrong.  I always stipulate that there can be "bad borrowing," but my correspondent certainly had the vibe right.  In any case, he asked for a good non-technical explanation of why government borrowing is not bad bad bad.  I am adapting my response to him here, adding significant detail.

My snarkiest possible response to that email would have been to say something like this: "Just go and search Dorf on Law and Verdict using terms like deficit scold, debt mania, VSP, ignoramus, and so on, and you'll have more than enough reading material to answer your question."  But because I know that this reader has been following my writings for some time, I looked for something simple and clear by one of the few other economists who consistently gets all of this right.  Unsurprisingly, I came up with a truly excellent piece by Krugman on his substack from February of this year: "Federal Debt: More Than You Want to Know."

That piece is, unfortunately, behind a paywall, which annoys me (given that Krugman hardly needs the cash), but I have to admit that it is an excellent essay.  Anyway, for those with limited funds, limited time, or both, I will summarize his key points in the course of my discussion below.

So let me begin by revisiting a point that I made in a Dorf on Law column last month: "Clever, (Economically) Ignorant Liberals."  There, to demonstrate that even liberal Democrats (that is, not merely the center-right devotees of Bill Clinton-style triangulation who run the party) can say truly vapid things about public borrowing -- and to show that this is hardly a new phenomenon -- I reached back to 1985 and mocked a column by the late Lewis Lapham in Harper's.

Lapham wrote this: "The United States is bankrupt.  The national debt exceeds $1 trillion, and unless the government debases the currency, it has as little hope of repaying its loans as do the governments of Brazil, Mexico, Argentina, and Peru."  I wrote this: "Wow.  That is truly stupid."

I was not at all wrong, but I was in such a hurry to move along to Lapham's other inanities that I did not pause to explain why even that first bit was so ridiculous.  Please allow me to elaborate here, making basic points that I have made many times and that are also summarized in Krugman's substack piece.

It did seem safe to me to assume that Lapham's errors were easy to see, given that he said that the US was bankrupt in 1985.  But hey, maybe we have been living in endless bankruptcy for all that time, right? Except that it makes no sense to call the US bankrupt, then or now.  Lapham's fundamental error from the jump was to fall for the idea that what matters is the number of dollars that a country owes its lenders, an error that he compounded by assuming that a BIG number of dollars is proof of bankruptcy.

On January 1, 1985, gross federal debt (which is the wrong measure of debt, but I can only fight so many battles here) was actually $1.8 trillion, so Lapham's information was actually several years out of date.  More to the point, however, debt only matters as a percentage of a borrower's ability to pay, which in the case of a government is measured by the country's GDP.  At the beginning of 1985, the debt-to-GDP ratio for the US government was about 40.4 percent.

Is that number "big"?  He thinks so.  If so, is it too big?  Good heavens, he is absolutely sure of that.  Why can it only be repaid by "debasing the currency"?  He is not moved to explain.  Did the US have a similar economic position at the time to the countries in its hemisphere who were dealing with financial crises?  That assertion does seem "truly stupid," to coin a phrase, but there we are.

Here is the most important, but least obvious, error that Lapham makes: he thinks that it is important for a country to "repay[] its loans."  In 2012, I published "Why We Should Never Pay Down the National Debt" as part of a symposium in the University of Louisville Law Review.  I made the same points there (at length) that Krugman summarizes in his substack article ten months ago, giving interested readers another reading option.  In any case, the point is that governments do not need to pay down debts because they can service those debts forever.  Unlike a person, a government has no natural lifespan, so there is literally no drop-dead date on which debts must be repaid.

Countries do not need to pay down debt, so in fact they never do.  Those that try always fail, because trying to repay debts harms the economy and ends up increasing the debt-to-GDP ratio, while making further borrowing necessary to counteract the self-imposed recession that follows.

This "pay down the debt" thing will occasionally rear its head when some motivated soul makes news by pointing out that, say, the debt that Britain took on to fight War X (or simultaneously to oppress colony A) has never literally been paid off.  That country's treasury (the Exchequer, for the anglophiles out there) has been rolling over debt for centuries, and although only a small amount of British debt is in "perpetuities" (bonds with no date of maturity), the bonds that do mature are replaced with new bonds.

That is not because British fiscal managers are cynical or venal, but because that is the way it should be done.  Britain's debt-to-GDP ratio has gone up and down over time, as has the US's.  But aiming to reduce the absolute dollar amount of debt is based (at best) on an incoherent idea of fiscal probity.

I should also mention that there was a point in the late 1990's when it briefly appeared that the US would in fact pay down all of its debt.  This prediction was based on the assumption that the dot-com bubble would never burst, but the very prospect of US Treasury debt going down panicked even the most fervent right-wing finance types.  They wanted the debt to continue to exist.

In light of the above, one can understand why I am not especially surprised to have received an email from a reader surmising that I "disagree that the national debt is a problem."  Even so, as I have been saying for years, there are circumstances when federal debt might become a problem, especially when (as in 2025) it is being increased to make the hyperrich hyperricher.  Krugman ends his substack piece by saying that there are circumstances in which deficits (which is the annual amount of new borrowing, not the total debt) should be reduced, because 

debt is still growing faster than GDP, even though we’re at full employment, and with interest rates on debt much higher than they were for most of the era after the financial crisis, the growth of debt is more worrisome than it would be if rates were still close to zero.

So now would be a good time for fiscal orthodoxy to get us back on a sustainable debt path. If Congress and the White House could agree on some combination of tax hikes and spending cuts that would greatly reduce the deficit, the Fed could offset the negative effect on spending by cutting interest rates, and everyone would breathe a little easier.

Also, if wishes were fishes, beggars would ride, or something like that.

So where we are now is that for the first time since 2007 the economic situation really would allow us to make a serious effort to reduce deficits and maybe even the ratio of debt to GDP. But given the political situation, that’s a fantasy. 

I wish that he had emphasized that the tax hikes should be progressive (at least partly undoing the super-duper-regressive tax cuts that Republicans pushed through in 2017 and 2025), but we can leave that aside for now.  The point is that fiscal "doves" know that debt is only good or bad in context.  If the US had taken conservatives' anti-debt rhetoric seriously during the Great Recession in 2009-10 or during the Covid lockdowns in 2020-21, the last 17 years would have been very, VERY bad.  In the current context, by contrast, a somewhat orthodox fiscal plan is at least defensible.

I will finish by noting that my correspondent also asked me to comment on a recent op-ed in The Wall Street Journal (WSJ) that drearily went back over the conventional silliness about federal debt.  As always, I will not provide a link to the piece, because the WSJ's editorial page is a rightwing pit with no credibility at all, including in its choices of who and what to publish in its guest slots.  Of course they were happy to publish yet more anti-debt nonsense.  Why send them clicks?

But perhaps the WSJ had a good day and (perhaps accidentally) published something worth reading and thinking about.  Maybe?  No such luck.  Indeed, after leading with two pointless sentences about Alexander Hamilton, the guest writer went with this: "Over two centuries, the money we borrowed funded many of the biggest developments in our nation’s history. But we stopped paying it back and kept borrowing more, with no workable plan in place for repaying it."

In these situations, I picture those classic scenes in movies and TV shows depicting singing auditions.  In many cases, the aspirant has sung only two or three notes before hearing, "Next!"  There is no point in continuing, because the director has heard enough.  The person has already failed.  That is where I am when it comes to reading opinion pieces about government borrowing.  Someone says that the country is bankrupt.  Next!  Someone says that the government is like a family that has to sit around the kitchen table and tighten its belt.  Next!!  Someone says that we should be repaying the debt.  Next!!!

As I noted above, this matters because every Republican and too many Democrats deserve "the hook" (to change my showbiz analogy) when it comes to all of this.  They then talk themselves into believing that they are the stewards of the future who must fight against the evils of government.  And before long, millions of people are imminently in danger of starving.  Never let anyone tell you that ignorance -- especially motivated ignorance -- about serious policy questions is harmless.

- Neil H. Buchanan