The U.S. national debt is more than $28 trillion.
It's a massive number.
Bigger, bigger than the size of our economy.
In fact, it’s the biggest debt in the world,
but the U.S. government keeps spending more than it brings in.
Our rising debt levels poses a national security threat.
People need to start taking this seriously or it’ll be too late.
With the COVID pandemic, government spending has exploded,
even as demands for more government programs are growing.
But who will end up paying for all this?
It’s Washington, DC’s game of kicking the can, and your kids are gonna be it.
Are future American generations really getting a broke country?
No.
Not all economists think the national debt is something we should worry about.
One of them is Stephanie Kelton.
She's a professor of economics and public policy at Stony Brook University.
I'm the former chief economist
on the U.S. Senate budget committee
for the Democratic staff.
And I'm the author of New York Times bestseller
"The Deficit Myth."
That book has a lot of interesting ideas about government debt.
We’ll start with the fact that there’s a big difference between you taking a loan,
and the government borrowing money.
If you can't get money to pay your debts, your creditors can take your assets,
and you could be in for a lifetime of misery.
But the U.S. government isn't you.
It doesn't have to worry about where it can get
the money to pay its debts because...
The federal government's the issuer of the dollar.
So it can never find itself in the same sort of
financial trouble that you might find yourself in
when it comes to paying your debt back,
because the government is paying back its debt
with currency that it issues itself.
Listen to that again.
The government is paying back its debt
with currency that it issues itself.
In other words, the federal government doesn't
have to worry about earning dollars in order to
repay its creditors,
because it gets to manufacture the currency.
This is the key point: The U.S. government can make more money
whenever it wants to, to pay for whatever it wants to, including its debts.
That means that not only can the U.S. federal government never go broke,
it doesn't need to borrow money from anyone else.
If you stop and think about it and you say,
if you could issue something
...like the U.S. dollar...
and it could only come from you,
would you ever feel the need to go get it
and borrow it from anyone else?
OK. Now we've established that the federal government makes U.S. dollars
so it can never run out of them,
and that's how it can always pay its debts.
And that's why it never has to borrow from anyone else.
So if the government doesn't need to borrow, why is there a national debt?
It's a good question. But to answer that,
we first have to understand what a deficit means.
Imagine that the government spends
$100 into the economy,
but it only taxes $90 back out.
We label that a government deficit.
But what we have to remember is
if they put a hundred in
and only subtract 90 back out,
what they're really doing
is depositing $10
into some part of our economy.
So those $10 are actually circulating in the economy.
It's a negative in the government's books, but it's a positive for the rest of us.
Every deficit is good for someone.
The question is, who gets those dollars?
Where do they go? And what is that deficit being
used to accomplish in our economy?
Is the money going to people who will spend it on things they otherwise can't afford,
stimulating the economy more?
Or is it going to people right at the top, who will likely just save it?
Seeing our own money in the negative is scary.
So it's understandable to have a similar reaction
when we look at the government's finances.
And that's probably the idea that Mitt Romney was channeling when he said:
I think it’s frankly not moral for my generation to keep spending massively more than we take in,
knowing those burdens are going to be passed on to the next generation.
But we know the next generation won’t be paying for this spending out of their own pocket,
because the federal government makes U.S. dollars, so it can't go broke.
Which means it can always pay its debts,
which means it doesn't have to borrow from anyone.
Plus, deficit spending actually leaves money in the non-government part of the economy.
If you're thinking there has to be a catch,
that the government can't just keep printing money to fill our bucket.
Well, you're right.
At some point, there will be too many dollars chasing too few goods,
making prices go up.
We have so many dollars and we're so eager to
go out and try to chase after goods and services,
and our economy can't keep up.
We don't have the productive capacity. And all of a sudden, all of that spending
starts to overheat the economy,
and the bucket begins to overflow,
and you get an inflation problem.
Inflation is the actual limit to how much the government can spend.
Not debt.
Inflation is what we have to worry about.
Now to counter inflation, the government can try to reduce demand
by making it more expensive to borrow money.
It can also siphon back some of that excess money by taxing it.
But what if we made our bucket bigger, to fit more money?
If the government is spending on things like
infrastructure and education and R&D, research and development,
these are the kinds of things
that increase productivity,
and increase the economy's potential output so that you actually
end up with a bigger bucket over time.
So now that we know that a deficit isn't necessarily a bad thing,
and the U.S. government can always make money,
it's time to answer that earlier question:
Why is there a national debt?
The truth is, there isn't.
As Professor Kelton explains, what we call the national debt
is just the total account of all the money the government has spent over the years
minus all the money the government has taxed back.
Even if the government has spent
more than it's collected,
it doesn't have to pay anyone
back for the difference.
But what about when people say things like,
"The U.S. owes China!"
Well, investors, including foreign governments,
buy bonds issued by the U.S. Treasury.
The return on these investments is virtually guaranteed because
the U.S. can always create the money to pay.
So there's no danger of a foreign army showing up to repossess the White House.
Understanding that the U.S. government can never run out of money
and can continue deficit spending as long as inflation is kept under control
means big policy ideas like universal health care, a Green New Deal or student debt forgiveness
might pay for themselves by keeping more money in the hands of consumers,
employing more workers and expanding the country’s infrastructure.
That’s what happened after World War II, when huge government investment
led to the expansion of the middle class.
But for decades now, people have been told a different story.
If the state wishes to spend more, it can do so only
by borrowing your savings or by taxing you more.
And it's no good thinking that someone else will pay – that “someone else” is you.
There is no such thing as public money. There is only taxpayers’ money.
Now like the U.S., Britain also issues its own sovereign currency
– so Margaret Thatcher had it wrong.
When the government wants to spend, that money is made instantly.
It doesn't wait for taxes.
We saw that recently when the U.S. Congress wrote trillions of dollars into existence
by passing major COVID relief bills
without raising taxes.
So the obvious question now is: Why do we pay taxes at all?
Well, we pay local taxes because local governments do need revenue –
they can’t make money like the federal government can.
And we’ve already seen that the federal government
can use taxes as a tool to control inflation.
Taxes can also be used as incentives.
For example, if the government wants people to stop buying gas-powered vehicles,
it could offer tax breaks on electric cars.
Taxes can alter wealth distribution, spreading wealth among the population
or, as the 2017 Trump tax cuts did,
further concentrate wealth among a tiny slice of the population.
And finally, the government makes sure we continue to need the dollar
as currency by requiring that we pay it in that currency.
You and your friends could agree to start paying
each other in Bitcoin or Euros
or even chocolate bars.
But you'll still need the dollar
to pay the U.S. government.
A deficit doesn't mean the country is broke.
Your kids won't have to pay back the national debt.
Understanding this fundamentally changes our perception of what's possible.
The U.S. has been deficit spending for decades.
As long as inflation is kept under control, there's no reason it shouldn't keep doing so.
The government has been running deficits
virtually my entire lifetime,
and I'm older than I look!
And that's not to suggest that all of those deficits
and everything that was done to create and sustain those deficits
improved life materially for the broader society.
But, of course, there were times when
government deficits became very large and
sustained and material improvements were made.