We don’t have any serious leaders on this issue. We don’t have scholarship divorced from politics about this issue. Maybe we never will. The Austrian school basically thinks this is the end of the world. The MMT folks think this is business as usual. The Keynesians are somewhere in the middle, but being in the middle of the road politically is not the same as an apolitical view on this.
As a lay person who hasn’t studied economics enough to understand if this is an actual issue or a theoretical issue, I really need some politics-free scholarship on this.
It doesn’t help that our political leaders say it’s an issue, unless it’s their party that wants that spending, then it’s fine. The right says it’s fine as long as it goes to endless wars, and the left says it’s fine when we spend the money on social programs. Both say it’s bad when the other side spends it, but not when their own spends it.
This is exhausting and demonstrably not helping us resolve the fundamental issue of how do you manage a large society without it imploding.
The problem is that our political leaders don’t really understand economics, and they think you can pick and choose the parts of an economic system that you like while leaving the “bad parts” (the parts that don’t benefit our benevolent rulers) on the table. So we get MMT inflationary printing with military Keynesianism and Austrian austerity.
None of these systems work if you only take a part of the system! Any of them would probably be viable, implemented properly with a good understanding and fine adjustments to account for reality, but you can’t mix and match!
The practical framing would be as two follow-up questions: what do the lenders care about? And what happens empirically when debt spirals?
If lenders do nothing, then nothing really matters - keep borrowing and let your debt grow exponentially.
In practice though, lenders, in their wisdom or folly, get spooked when debt goes up. In the Greek debt crisis, it all started with debt in the region of 130% of GDP. Rolling the debt with more debt spiralled away as lenders wanted an ever higher interest.
So US would either need to start really inflating its debt and test the investors patience, print the cash and let inflation run away, or tax and cut spending.
In the first scenario it kind of doesn't matter where the limit is - people sometimes argue about magic levels. The issue is that eventually the debt grows exponentially, so once it's out of control, it will exceed any reasonable level pretty quickly.
Can the US convince the world that their debt is special? I'm not sure. My reading is that investors are already twitchy about US debt, for other reasons for now, but higher debt levels surely won't calm them down.
So really I think the US has no better choice than to keep its debt down.
MMT folks generally advocate that inflation is the way to measure if the spending is "too much" and argue that spending should generally aim to improve productivity (i.e. increase gdp) to minimize this issue (e.g. spending to build infrastructure so people can get to work is productive vs spending so people stay home is inflationary).
There is this pervasive idea that MMT promotes limitless spending and I'm not sure where it comes from, what they actually preach feels like a reasonable way to evaluate government spending to me.
I think the major argument against MMT is that no one has the stomach to actually implement the level of taxation necessary to counteract inflation when it starts to rise too quickly. Or at least no major political party in the United States.
Everything can be sound on paper about MMT but if no one is going to practice it properly then the theory isn’t really going to work out.
As much as “eating your vegetables” in terms of government budget policy makes sense, if making people do that in practice gets you immediately voted out of office (or not even elected in the first place), then we won’t be eating our vegetables.
Keynesianism has the same problem - the government is supposed to spend in the bad times (to keep the economy moving) and save in the good times. But in the good times there is an incredible pressure on the government to spend more as tax revenues increase.
To make matters worse, when inflation spikes, that's kind of when people need the money. Good luck radically increasing taxes in a 10% inflation shock.
There is this pervasive idea that MMT promotes limitless spending and I'm not sure where it comes from
Right. The theory says you can (should?) spend until you hit the "inflation ceiling," then use taxes to drain liquidity.
But what we saw in 2020-2022 was that we hit the ceiling at 100mph. The "tax it away" solution proved to be a political fantasy. No politician is going to hike taxes on the middle class to cool down the price of eggs.
My understanding (I'm not an economist) is that MMT is currently viewed as a "fair-weather theory." It explained why we could spend during a liquidity trap, but offered no viable steering mechanism once the engine overheated.
In my mind, this puts it in the same box as Keynesianism. Both theories are politically convenient because they offer politicians an excuse to pander. But those politicians aren't willing to do what their pet theory would require once the emergent crisis has passed.
It's also pretty funny when you realize that the GOP loves MMT when it comes granting tax cuts but when you use the same MMT principles they use for say social welfare suddenly MMT is nonsense!
> The right says it’s fine as long as it goes to endless wars, and the left says it’s fine when we spend the money on social programs. Both say it’s bad when the other side spends it, but not when their own spends it.
Spending is only one part. The part that almost nobody wants to touch is raising taxes to support the spending.
Obama also cut the deficit by more than half. It didn't get all the way to a balanced budget because of how bad of a mess Bush left to clean up, but it was moving in the right direction.
And as a sibling post noted, Bush senior also both raised taxes and lowered spending on a relative basis. So the original assertion is decisively disproven -- half of our modern era presidents (along with the Congress they presided over) did not behave the way they said "only happens".
This ignores history. We did raise taxes in the 90s and were paying off our debt. Bush senior made the big boy decision and it left us in amazing shape. Clinton handed over a government to W that was paying off debts and had surplus from 1998-2001.
The US had a balanced budget in 2001, after decades of most people claiming that was impossible. The problem with a balanced budget is we all have to live in the real world. The actual real world that you can measure, not each individual's theoretical world of choice.
But stories are much more fun than data, and we put everything on the credit card, and here we are.
All sibling comments are untrue, because it is the legislative branch that has the "power of the purse", including the ability to raise/lower taxes and pass budgets for spending.
So whether an executive makes campaign promises, takes credit for signing the bills into law, or championing the bills and advocating that Congress pass them, it is ultimately Congress--the House with the Senate--that has done these things with taxes and the budget.
Well, the Founding Fathers would perhaps frown upon a cult of personality, and the attribution of big effects to one singular person has obscured the way government, and the world, work. So if you go out asking protestors how the President is like a King, they may tell you that the President raised taxes (or taxed the wrong people), and spent too much of our money (or spent it on the wrong priorities).
I want to raise taxes to get rid of billionaires and the historically high inequality resulting in many (most?) of today's problems. More money for the government makes it a win-win. Not American, so I don't have a horse in this particular race.
Thanks for sharing your opinion. The first difficulty in real world (even idealized) politics is voicing a consistent independent stance and thinking through the implications. Many cannot even make it that far.
The second and greater difficulty is that realizing that a solution that is politically untenable is not a solution, it's a campaign slogan. I don't know how we get people to move past this difficulty.
I'm an American with a few horses in this race, and I also want to raise taxes to get rid of billionaires and provide more money to the government.
I'd prefer to use that money for "progressive" things like schools and libraries and parks (voted in 2024 to increase my own taxes on those things specifically, but my neighbors voted against them), but I'd even settle for spending it on the military if it came out of the pockets of the oligarchs to reduce inequality.
The part that almost nobody wants to touch is raising taxes to support the spending.
NYC passed their pied a terre tax. Even federally, at least some in congress are trying to push for new taxes. Taxing the wealthy is the most popular way to lower the debt.
Yeah, this. The one issue that unites left and right (and pretty much everyone else): We do not want to pay for this much government.
One step past there, of course, there is no more unity. Can we just run a deficit forever with no consequences? I have a profound distrust of free lunches, but I can't prove that MMT is false. I'm almost certain that it is, but I can't prove it to the satisfaction of anyone who believes it.
But even if you don't believe MMT, then what? Can we keep going a while longer without too much damage? Should we?
And if not, then we have to cut some things or raise some taxes or both, and that's where the political trench warfare starts.
Money is make believe if it’s not backed by something. Ever since 1970s, money has been a figment of imaginations. We only have a semblance of balancing (or attempting to) the budget but reality is they just print the paper or update a sql row. Done. More money.
right, something we have assigned a value to. We disagree on. We find the common denominator and have a deal or we don't. could be a sticky note, could be a rock, but we decided it's 2.5"x6" paper with ink on it.
There was no deal, except maybe initially the promise to exchange for gold that the government defaulted on.
The government said pay taxes in USD or go to jail. They pay their contractors and employees USD (some of which can essentially be "eased" out of thin air). After those people get it, they can say "jump bitch" and you or someone you want to trade with will do what they say, because without those USD you won't be able to settle your tax debts.
That's where "or someone you want to trade with" comes into play. It turns out it's highly useful to have the currency that ~300M people with the largest tax debts in the world need. There's no other currency backed by that much violence.
You can always be assured there is some American who desperately wants to stay out of jail, and someone will want to buy their stuff.
> it's highly useful to have the currency that ~300M people with the largest tax debts in the world need
The drivers are consumption and investment. Not taxation.
If you want to sell to the richest consumers in the world, you get dollars. If you want to finance something from the deepest financial market in the world, you accept (and repay with) dollars. (Both of which drive demand for, and thus deepen liquidity around, dollar-denominated financial assets.)
Demand for currencies and the level of taxation are barely correlated.
As somebody already pointed, you should always ignore the Austrians.
Now, keep in mind that "business as usual" is different from "not an issue". The MMT folks will be able to tell you exactly what the consequences are (a hint, they are not very different from when it was 95% of the GDP), while the Keynesians will rush to tell you that the stuff the MMT people are talking about isn't as important as other stuff the government could be doing. Notice that both can be correct at the same time.
Empirically, at some level of inflation the Keynesians become just wrong. Most people usually stop being Keynesian at that level.
What's the difference between MMT & Keynes? Keynes is the one who gave the "what you can do you can afford" speech. IMO (some) MMT folks are more Keynesian than many modern "Keynesians".
"Keynesians" are not people that talk about the ideas Keynes had. It's quite common for most "ians" or "ists" to not push the ideas their name implies.
Yes, MMT is largely based on Keynes ideas, so they will say a lot of the same that Keynes actually said.
At the same time, "Keynesianism" is more of a political movement than a scientific school (although, it's a well informed one). That's why they can be right or wrong independently from MMT. "Monetarism" is also a political movement, that people often confuse or try to claim to be the same as MMT.
Having an economic science without politics at all isn't really possible - you have to define a goal for economic development to evaluate different approaches. And defining that goal introduces politics into economics. "Development for what or whom or whether at all" simply can't answered in a neutral way, it will always be in the interests of some and against the interests of others.
Isn’t the whole point of a ‘scientific approach’ to reduce biases and to study the problem independently of how the problem affects us? Why do we call things sciences but we’re unwilling/unable to divorce our biases from the process of studying a thing?
My background is in educational science where we face similar dilemmas. In both fields I'd say there is no conflict between scientific rigor and political goals as long as you make your goals transparent.
The fact that you want to study economic processes because you want to e.g. better the live of the poor half of society does not mean you can't apply scientific principles. But the results will not necessarily be applicable for those who think a rising tide lifts all boats and therefore want to develop the economy in the interest of the upper class.
In fact I'd be suspicious if people claim to be unbiased in any field that even remotely has something to do with humans or society - it usually just means they either hide their interests, or aren't aware of their biases.
If it’s impossible to discuss GDP without politics, then it’s impossible in our current political climate to discuss whether or not debt as a function of GDP is a valid measure of an issue, and the practical effects of that issue.
It would seem that functionally the only real world impact would be spending more money to service that debt.
Ok, what about just cancelling that debt? Some economists have said “it’s money we owe ourselves”, so why not just forgive ourselves of our own debt? What would be the real world impact? What would happen?
We keep attaching political value judgments to this without reasonably discussing the practical implications free of our own political dogmas.
>Ok, what about just cancelling that debt? Some economists have said “it’s money we owe ourselves”, so why not just forgive ourselves of our own debt? What would be the real world impact? What would happen?
It's tied to Treasury Bonds that people hold so they would become worthless.
You keep using words like “us” and “ourselves” but I don’t think you understand that you’re not in the same class as the people who lend the money or the people who lobby for how any public resources are going to be spent at all.
> Ok, what about just cancelling that debt? Some economists have said “it’s money we owe ourselves”, so why not just forgive ourselves of our own debt? What would be the real world impact? What would happen?
It's not money we owe "ourselves", it's money we owe each other. When you buy government bonds you're lending money to the government. Cancelling the debt is just stealing the money everyday people and investment institutions have lent to the government. What would happen is people would lose a huge portion of their investments and pensions and it would be catastrophic.
Honestly it's wild to spout an opinion in this thread if you don't understand this.
MMT - it was a flash in the pan pre-COVID during the "capital is infinite / ZIRP" era. It was used as a political tool to justify increasing deficits/debt.
The challenge with this problem set is the timeline is tricky. At some point the bridge can only handle so much weight before it buckles and collapses but we don't know how strong the bridge is and we have no way of measuring it.
MMT is the equivalent of saying the bridge doesn't have to worry about physics because (a) we said so and that the (b) bridge hasn't broken yet so its fine. It is a bad economic philosophy.
I’m not economist but my impression when I learned about MMT is that it’s predicated on the idea that money isn’t like bridges at all. And is actually at this point of history a purely abstract model where “we said so” works. Meanwhile lots of people really believe a country can “run out of money” or whatever. You run out of trees, teachers and nurses, not money. Anyway what’s clear to me is that the metrics we picked like gdp or debt ratio or whatever aren’t helping us make good choices.
It is the epitome of hand wavy economic philosophy. If you think about the uber simplistic version of a credit card payment - now extrapolate to nation states where you have a myriad of debt types, debtors, swaps, much larger payments, longer timelines you can keep running your debt/deficit for a long time. However if you grossly outstrip your ability to pay at some point those incredibly complicated structures do buckle and trip the system. That the timeline is further than we thought doesn't mean it won't happen. MMT essentially says don't worry about it because it hasn't happened yet. We can spend our way out while trying to say our obligations are of little weight.
It's a garbage economic theory - strictly to justify greater spending from our politicians. In time it will be proven out to be a failure of human thinking - it is a siren call.
I dunno it seems to me that whenever the Democrats are in office the deficits start to go down; and whenever there is a Republican in office they tend to go up. That's been the pattern my whole life so far.
Like, you say the two sides are the same because one wants to spend endless money on wars and the other wants to spend endless money on social programs, but we only ever spend endless money on wars. There's no spending comparable to war on poverty / illiteracy / sickness / homelessness.
Same observation. I’m beginning to think that it’s not about “spending” like if money was a finite resource. It’s really about the outcome of the policy: more power for elites and more access to energy and resources; vs more power and independence for regular people (and thus less for elites relatively speaking). From a “spending” perspective you could really do both and in the real economy they don’t even compete for the same resources.
Some of this is political, but Trump especially wildly makes a mockery of Republican supposed deficit hawkishness, not based on ideology, but by lack of a competent cabinet.
curious question as a canadian. when our prime minister makes a budget, it really is his fault. He runs parliament and executive functions. The budget in the USA is supposed to be a congressional matter so why does the president get any blame?
I view it as a rational play of prisoners dilemma in a nation with central bank and fiat currency. You will ~always lose (well until things get hyperinflationary) to someone promising OPM without more taxes. The system since the 70s ensures that.
the left says it’s fine when we spend the money on social programs.
FWIW, for every dollar given to people for social programs like the child tax credit, they spend $1.50-$2 locally. This seems fine to me & it was popular country-wide. Meanwhile, we've gained nothing from the Iran war. We've obviously lost money and probably weakened our global standing and strengthened some of our enemies. It is also unpopular with the people. You don't have to "both sides" every issue. You can assume republican leadership is generally bad and don't have to give them the benefit of the doubt on issues you're not studied on.
Here's the real issue. Economic innovation only really happens when the government is spending big on some issue. That's at least half the reason war advances technology so fast. It's not like Ukrainians weren't able to figure out drones 5 years ago.
Stopping spending kills the economy. Which kills tax income. Which puts far more stringent limits on spending. Which reinforces the need to stop even more spending.
The parties were not symmetric on this issue. They were not symmetric in terms of actual behavior (as in how much debt each added when in government) nor in terms of rhetorics. For a start, Democratic party was acting mostly in centrist technocratic manner and rather then radical leftist manner you are implying.
It is really not necessary to knee jerk bothside everything.
Yes "If" spending is cut or "If" taxes are not cut then you might have a balance.
But just implement balanced budget goals. Accept at most a deficit of 1% in the budget or whatever. Allow for a deviation from this to do QE but require a more qualified majority and limit to 1 year only.
Want to cut taxes? Fine - but don't do it with deficit spending. Want to increase welfare spending? Fine - but remember to then cut somewhere else OR increase taxes.
The fact that one side can implement large tax cuts funded by borrowing over and over (and still be elected again) is absolutely _crazy_ on a scale that is perhaps only rivaled by the healthcare system.
ICE is now larger and more expensive than the entire United States Marine Corps.
Let that sink in.
Not only that, we also seem to start a new war every 6 months. Demanding money for each one of them. SS/Pensions/Medicare seem to trend nowhere but up. And like Santa Claus the party in power keeps handing out tax cuts.
We have to make a change guys. The old ways aren't working. We can't be distracting from the central problems by yelling "welfare!". That doesn't work anymore.
Cutting welfare spending will get us no where. The majority components of the federal budget are Defense, SS/Medicare/Medicaid, and debt payments. Not the forestry service or what we commonly know as welfare. At this point, even cutting everything else to zero still lands us in deficit. (Unless taxes are raised.)
To be serious, we need to talk about what cuts are to be made to SS/Medicare/Medicaid and the military. But no one wants to have that discussion. So we throw out meaningless issues like welfare and the forestry service. We quibble around at the extreme edges, never addressing the central problems. That's the essence of the politics being discussed. Those politics make the issue impossible to fix.
I honestly don't know why it's so hard? I'd be totally willing to countenance the necessary cuts to the sacred cow programs at this point. Why is everyone so opposed to it?
The problem isn't politics, its been made to look that way but the issue is that the people who would know have been silenced in a way that the general public hasn't recognized. Its not in the benefit of the corporate overlords that you be properly educated on this.
I'll give you a brief TL;DR on the issues.
The wealth of a nation is based in its ability to produce primarily goods, and sometimes services. Pricing is a signaling mechanism that allows efficient resource allocation of both goods, and factor market labor.
When misallocation results, you get things like busts and booms where the benefits are front-loaded and a resource exhaustion cycle takes place. There are constraints which cannot be breached for any length of time, such as wages being lower than the cost of living enough to support a wife and three children to 18, and other things. Legitimate business can't operate if it can't make a profit.
There is silently nationalized industry that is unconstrained via a cycle of money-printing that has sieved assets into few hands, and risk concentrated in few hands. This is part of the danger of the ECP, and other fundamental failures related to centralized systems.
The Austrian school lives in the future. The future under a breakdown of organized society is one of death and potentially extinction. We depend on food production in ecological overshoot which depends on technology and farming. The 1970s represented ecological overshoot. When that fails you get shortage, that then sustains, famine, slavery, death, and then extinction.
Under socio-economic collapse everything fails. Currency is abandoned. Exchange cannot happen. The store of value and exchange of value fails. This happened during the Bronze Age (of which we have very little records that remain).
If these happen for extended periods of time, capital dries up and you get something like the great depression, Nintendo, and other places where logistics refuses to deliver goods at any potential profit because they were burned too many times.
There exist systems that will fail eventually and predictably (in general), but which you cannot predict specifically when those failures will happen, its unknowable, and the effects one would use to justify any decision lag behind the objective indicators of the actions that needed to be avoided.
Money-printing extracts value from those that hold the currency through the cantillion effect. Its an extraction of unpaid slave labor. Eventually it exceeds the store of value, and the businesses that normally produce stop producing. Exchange stops, etc. AI presents a unique spin on this as well because it accelerates the corruption of signalling presenting false signals chaotically in both labor and good markets.
In positive feedback systems, these type of systems commonly run-away and converge at a point of calamity. When they do the dynamics are unstoppable.
The MMT folks are delusional, having rested quite a lot of their false justifications on unsound practice to justify extraction of value.
The Keynesian's aren't so different from the MMT folks because they improperly look at certain things only in isolation with a seeming mental block to all other things, which is a form of false justification.
The bankers (if you can call them that) have corrupted leadership, and enabled sieving through non-reserve debt issuance. The mechanism over the years is leveraged buyout. The business cycle today largely runs on the ponzi cycle with debt issued upfront providing benefits upfront, followed by enshittification as the resource exhaustion cycle runs its course.
Chaos is fundamentally destructive. Large societies don't implode when they have stable stores of value, a rule of law (not by law), and manufacture goods their populace needs.
Market dynamics fundamentally fail to operate as a market under slave labor as a function of the cost function for the majority of participants. It doesn't matter if that labor is provided by a foreign power with costs socialized, or stolen through the currency through deficit spending. When you cannot know correct prices, everything falls apart at fundamental levels but you don't see it until its too late after which point the only thing you can do is start over; but existing structures under such systems seek control to the point of extinction.
No one gives power up willingly, and those that have it seek to destroy the ability for others to take it.
You can't ever make a consensus when a good portion of the people part of that consensus have become delusional, often without them even realizing it.
Austrian school is less an academic discipline or study of economics and more a post-hoc justification for libertarian philosophy. So you can freely ignore them.
Maybe decide if the right or left has better priorities. Do you think spending money on guns and war like the right is good? Do you think spending money on social programs to be good? Seems like an easy decision to me, but hey, i have empathy and don't like killing.
With the exception of Social Security, we (the US) has a balanced budget. No politician will get re-elected if they cut social security. (Thus) the politicians are working on the problem very quietly.
The general problem with Social Security is that it pays out way more then it takes in. Part of the issue is that everybody of retirement age collects social security, including multi-millionaires.
I’ll read that article later, but that doesn’t sound right — there can’t be so many multi-millionaires that them getting free money is stressing out the system.
Quick random googling, I’m seeing the number 3.2% of retirees have more than $1m
Social security is self funded and is actually a buyer of US debt. So there is no direct connection between social security shortfalls and US gross federal debt.
To be slightly fair to the parent comment, it seems at least a bit valid to choose whether to consider the social security tax to be revenue to the government and social security payments an expense or to treat them as an entirely separate account. And the social security tax structure at least appears to be quite regressive.
As an analogy: do you think that Costco generates most of its profits from sales of goods or from membership fees? Both answers seem valid.
All the great Western hegemonic powers have used public debt to finance the requirements and ambitions of the state. This was true of Spain in the sixteenth century, Holland in the seventeenth century, England at the height of its power during the eighteenth and nineteenth centuries, and the USA since World War II [1]. Public finance is a force multiplier that enables the government to undertake far greater civilian and military projects than it could otherwise achieve. Everyone knows this, including the people who are running the U.S. Treasury and the Federal Reserve.
As a percentage of GDP, government debt is high by historical standards, and it is rising at a fairly rapid pace. That could be a problem if it continues unabated. But there are two solutions: reduce spending and/or raise taxes. Most U.S. federal expenditure goes toward either defense, entitlements or interest on the debt, so it seems unlikely that spending will fall very much. That means higher taxes. At some point, the country will need to find a political reformer who can sell tax increases to the electorate. Until then, the crisis just continues to quietly grow.
[1] Giovanni Arrighi (1994) The Long Twentieth Century: Money, Power and the Origins of Our Times
No, it's still a problem. The reserve currency just raises the headroom by something like 20 points by making cost of borrowing lower than it would be otherwise. There is no free lunch, just subsidized lunch.
Italy and Greece have been running at over 100% for ~30 years. It's not great, but it's also not the end of the world. It's even less bad for the US, as long as lenders still trust that the US government will pay them back.
30% of GDP would be better, but 100% isn't going to collapse the US economy on it's own.
The ratio itself is less worrying than how fast the ratio is increasing. It was under 80% in 2019 and under 40% in 2009[1]. (This is excluding debt the government owes itself, which I believe WSJ is also doing).
The Greek economy has collapsed at least once in the past 30 years (maybe more, that's just off the top of my head), and had to be rescued by the EU. So I wouldn't use that as an example.
Borrowing costs have already gone up. The 10 year treasury yield is already double from where it was during the 2010s. There are other factors contributing but it’s worth mentioning as a partial factor
The US dollar is now also the oil exchange currency, and the US is a major oil producer so harder to squeeze. Remember what else happened in 1973 and 1979?
GDP provides a rough measure for how fast a country could drain its debt—similar to looking at debt-to-income ratio when issuing mortgages to individuals.
Nations also have debt to income ratios. We should be comparing those instead of debt to GDP. If you've ever seen one of those UK is poor than Alabama memes, you know that GDP is a poor and tendentious measure of well-being because UK quality of life measures put it above all about the richest states in the US.
GDP is also an amalgam of various indicators of general economic activity: Consumption + Investment + Government Spending + (Exports - Imports). It might be all in dollars, but it is kinda like adding $X of Apples with $Y of Oranges.
Its good as a rough score to do relative comparisons between countries (and actually Debt/GDP is useful in that sense too), but as an absolute amount it doesn't mean all that much.
What matters is how much the debt servicing costs versus government revenues. Also how much that debt is growing (deficit) and/or what it would cost to reduce it.
But there's not much of a consensus around what is too much or too little.
I suppose 100% Debt/GDP is a good arbitrary number to raise the alarm, but it doesn't mean much on its own.
A quarterly debt to revenue ratio would be a lot more illuminating. There are very good reasons not to care if that ratio goes out of whack for one or two quarters. But any bro divergence that persists is bad.
This ratio isn't just better because the units match, you don't have to adjust the units for growth and inflation.
If someone has a debt it's entirely sensible to compare that to their yearly income, of course this tells you something. GDP is a proxy for potential yearly income in taxes for the government.
I thought the US crossed that mark long ago. According to FED [1] it was in 2013. Could someone explain what the WSJ means given the article is behind a paywall.
Everything will be great until the default happens. After that, everything will still be great, we will just have less reputable friends. That's how spirals work.
As long as the debt is denominated in US dollars, default is a choice. The US cannot be forced into default; it can always choose to inflate away the debt instead.
Default itself will cause massive inflation, default is not a way to prevent inflation.
The debt is owed to other countries, and private bond holders.
They can request their money back, refuse to purchase future bonds, and if things get really dire, potentially go to war with the US (Don't worry, this is beyond unlikely).
Historically lending money to the US government has not been a problem. It's been a low earning but guaranteed return. Many of those loans have very long terms, and so even if it's a problem today, it wasn't when the loans were initiated, and it might not be when loans issued today come due.
Government debt is not like personal debt, for a lot of reasons that I am not smart enough to explain.
China doesn't hold that much of a percentage of our debt any longer.
Somewhere around USD700B. Of the USD39T, that's obviously not that large of a lever.
Pretty sure the Chinese have been implementing a policy of diversification at a minimum. (Probably a more likely explanation is they are implementing a policy of delinking and not just diversification, because the share of US Treasuries they seem to be willing to hold keeps dropping.)
That's an important question, and why US Gov Debt is different than Japanese Gov Debt, which also has a higher debt-to-GDP ratio than the US (due to decades of "zombie economy").
About 90% of Japan's debt is held by Japanese themselves, so it's much more insulated from a crisis that can't be resolved through domestic economy policy. (It could in theory print its way out of it.) Whereas about 25% of US gov debt (which is 3x Japan's in nominal terms) is held by foreign governments, including very large amounts by China. This, combined with the US being the main currency used for international transactions, gives those countries leverage over the US economy (though selling off the treasuries would impact their own holdings as well), and conversely means that US monetary policy has a global effect.
> Can't we just print more money to pay off the debt?
Indeed
> And there will be no consequences since we're the reserved currency for the world backed by the most powerful military in human history.
Yup, and it works until you're not the reserve currency anymore, which ... happened before quite a few times (Dutch guilder. French franc. British pound)
Recently, President Trump seemed to cosplay as Jesus. In that case, could he also die carrying America’s economic original sin and thereby cancel the U.S. national debt?
It’s not as good as it might sound. By “canceling” US debt, it would mean that the government failed to pay back those who lent it money, of whom the majority are US nationals themselves.
Well, he’s single handedly responsible for 1/3 of the debt! And, will add more before his term ends either by force, naturally, or duration completion. He don’t know how to cancel debt, but would happily add more to it and laughingly take home that cash.
Here’s the issue.
We don’t have any serious leaders on this issue. We don’t have scholarship divorced from politics about this issue. Maybe we never will. The Austrian school basically thinks this is the end of the world. The MMT folks think this is business as usual. The Keynesians are somewhere in the middle, but being in the middle of the road politically is not the same as an apolitical view on this.
As a lay person who hasn’t studied economics enough to understand if this is an actual issue or a theoretical issue, I really need some politics-free scholarship on this.
It doesn’t help that our political leaders say it’s an issue, unless it’s their party that wants that spending, then it’s fine. The right says it’s fine as long as it goes to endless wars, and the left says it’s fine when we spend the money on social programs. Both say it’s bad when the other side spends it, but not when their own spends it.
This is exhausting and demonstrably not helping us resolve the fundamental issue of how do you manage a large society without it imploding.
The problem is that our political leaders don’t really understand economics, and they think you can pick and choose the parts of an economic system that you like while leaving the “bad parts” (the parts that don’t benefit our benevolent rulers) on the table. So we get MMT inflationary printing with military Keynesianism and Austrian austerity.
None of these systems work if you only take a part of the system! Any of them would probably be viable, implemented properly with a good understanding and fine adjustments to account for reality, but you can’t mix and match!
The practical framing would be as two follow-up questions: what do the lenders care about? And what happens empirically when debt spirals?
If lenders do nothing, then nothing really matters - keep borrowing and let your debt grow exponentially.
In practice though, lenders, in their wisdom or folly, get spooked when debt goes up. In the Greek debt crisis, it all started with debt in the region of 130% of GDP. Rolling the debt with more debt spiralled away as lenders wanted an ever higher interest.
So US would either need to start really inflating its debt and test the investors patience, print the cash and let inflation run away, or tax and cut spending.
In the first scenario it kind of doesn't matter where the limit is - people sometimes argue about magic levels. The issue is that eventually the debt grows exponentially, so once it's out of control, it will exceed any reasonable level pretty quickly.
Can the US convince the world that their debt is special? I'm not sure. My reading is that investors are already twitchy about US debt, for other reasons for now, but higher debt levels surely won't calm them down.
So really I think the US has no better choice than to keep its debt down.
> The MMT folks think this is business as usual
MMT folks generally advocate that inflation is the way to measure if the spending is "too much" and argue that spending should generally aim to improve productivity (i.e. increase gdp) to minimize this issue (e.g. spending to build infrastructure so people can get to work is productive vs spending so people stay home is inflationary).
There is this pervasive idea that MMT promotes limitless spending and I'm not sure where it comes from, what they actually preach feels like a reasonable way to evaluate government spending to me.
I think the major argument against MMT is that no one has the stomach to actually implement the level of taxation necessary to counteract inflation when it starts to rise too quickly. Or at least no major political party in the United States.
Everything can be sound on paper about MMT but if no one is going to practice it properly then the theory isn’t really going to work out.
As much as “eating your vegetables” in terms of government budget policy makes sense, if making people do that in practice gets you immediately voted out of office (or not even elected in the first place), then we won’t be eating our vegetables.
Keynesianism has the same problem - the government is supposed to spend in the bad times (to keep the economy moving) and save in the good times. But in the good times there is an incredible pressure on the government to spend more as tax revenues increase.
To make matters worse, when inflation spikes, that's kind of when people need the money. Good luck radically increasing taxes in a 10% inflation shock.
There is this pervasive idea that MMT promotes limitless spending and I'm not sure where it comes from
Right. The theory says you can (should?) spend until you hit the "inflation ceiling," then use taxes to drain liquidity.
But what we saw in 2020-2022 was that we hit the ceiling at 100mph. The "tax it away" solution proved to be a political fantasy. No politician is going to hike taxes on the middle class to cool down the price of eggs.
My understanding (I'm not an economist) is that MMT is currently viewed as a "fair-weather theory." It explained why we could spend during a liquidity trap, but offered no viable steering mechanism once the engine overheated.
In my mind, this puts it in the same box as Keynesianism. Both theories are politically convenient because they offer politicians an excuse to pander. But those politicians aren't willing to do what their pet theory would require once the emergent crisis has passed.
It's also pretty funny when you realize that the GOP loves MMT when it comes granting tax cuts but when you use the same MMT principles they use for say social welfare suddenly MMT is nonsense!
Faulty to think we can outsource our inflation globally when that chain can get yanked outside our control.
> The right says it’s fine as long as it goes to endless wars, and the left says it’s fine when we spend the money on social programs. Both say it’s bad when the other side spends it, but not when their own spends it.
Spending is only one part. The part that almost nobody wants to touch is raising taxes to support the spending.
Because raising taxes has only resulted in more spending, not balancing the budget.
That's not true. Bill Clinton both slightly raised taxes and significantly lowered spending in relative terms, balancing the budget in the process.
Obama also cut the deficit by more than half. It didn't get all the way to a balanced budget because of how bad of a mess Bush left to clean up, but it was moving in the right direction.
And as a sibling post noted, Bush senior also both raised taxes and lowered spending on a relative basis. So the original assertion is decisively disproven -- half of our modern era presidents (along with the Congress they presided over) did not behave the way they said "only happens".
This ignores history. We did raise taxes in the 90s and were paying off our debt. Bush senior made the big boy decision and it left us in amazing shape. Clinton handed over a government to W that was paying off debts and had surplus from 1998-2001.
The US had a balanced budget in 2001, after decades of most people claiming that was impossible. The problem with a balanced budget is we all have to live in the real world. The actual real world that you can measure, not each individual's theoretical world of choice.
But stories are much more fun than data, and we put everything on the credit card, and here we are.
But cutting taxes has also resulted in more spending.
All sibling comments are untrue, because it is the legislative branch that has the "power of the purse", including the ability to raise/lower taxes and pass budgets for spending.
So whether an executive makes campaign promises, takes credit for signing the bills into law, or championing the bills and advocating that Congress pass them, it is ultimately Congress--the House with the Senate--that has done these things with taxes and the budget.
It's common practice to refer to terms by the president of the period even if they're much less responsible for the effects than is implied.
Taxes went up and relative spending went down during the period when Bush Sr was president and Democrats controlled the House & Senate.
Taxes went up and relative spending went down during the period when Clinton was president and Republicans controlled the House & Senate.
This was not true when they had a trifecta. There are reasons many Americans prefer the parties split power.
> It's common practice
Well, the Founding Fathers would perhaps frown upon a cult of personality, and the attribution of big effects to one singular person has obscured the way government, and the world, work. So if you go out asking protestors how the President is like a King, they may tell you that the President raised taxes (or taxed the wrong people), and spent too much of our money (or spent it on the wrong priorities).
https://en.wikipedia.org/wiki/No_taxation_without_representa...
[The astute reader may note that it was Parliament what levied the taxes upon the Colonies in the first place, and not the King himself.]
I want to raise taxes to get rid of billionaires and the historically high inequality resulting in many (most?) of today's problems. More money for the government makes it a win-win. Not American, so I don't have a horse in this particular race.
Thanks for sharing your opinion. The first difficulty in real world (even idealized) politics is voicing a consistent independent stance and thinking through the implications. Many cannot even make it that far.
The second and greater difficulty is that realizing that a solution that is politically untenable is not a solution, it's a campaign slogan. I don't know how we get people to move past this difficulty.
I'm an American with a few horses in this race, and I also want to raise taxes to get rid of billionaires and provide more money to the government.
I'd prefer to use that money for "progressive" things like schools and libraries and parks (voted in 2024 to increase my own taxes on those things specifically, but my neighbors voted against them), but I'd even settle for spending it on the military if it came out of the pockets of the oligarchs to reduce inequality.
If only there were more agreeable ways to create beautiful public spaces and public services.
The part that almost nobody wants to touch is raising taxes to support the spending.
NYC passed their pied a terre tax. Even federally, at least some in congress are trying to push for new taxes. Taxing the wealthy is the most popular way to lower the debt.
https://jayapal.house.gov/2026/03/26/jayapal-warren-boyle-45...
https://thehill.com/business/economy/5554777-gallup-poll-nat...
Yeah, this. The one issue that unites left and right (and pretty much everyone else): We do not want to pay for this much government.
One step past there, of course, there is no more unity. Can we just run a deficit forever with no consequences? I have a profound distrust of free lunches, but I can't prove that MMT is false. I'm almost certain that it is, but I can't prove it to the satisfaction of anyone who believes it.
But even if you don't believe MMT, then what? Can we keep going a while longer without too much damage? Should we?
And if not, then we have to cut some things or raise some taxes or both, and that's where the political trench warfare starts.
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Money is make believe if it’s not backed by something. Ever since 1970s, money has been a figment of imaginations. We only have a semblance of balancing (or attempting to) the budget but reality is they just print the paper or update a sql row. Done. More money.
> Ever since 1970s, money has been a figment of imaginations
Money has always been a social construct. There is no fundamental particle of currency.
right, something we have assigned a value to. We disagree on. We find the common denominator and have a deal or we don't. could be a sticky note, could be a rock, but we decided it's 2.5"x6" paper with ink on it.
There was no deal, except maybe initially the promise to exchange for gold that the government defaulted on.
The government said pay taxes in USD or go to jail. They pay their contractors and employees USD (some of which can essentially be "eased" out of thin air). After those people get it, they can say "jump bitch" and you or someone you want to trade with will do what they say, because without those USD you won't be able to settle your tax debts.
> without those USD you won't be able to settle your tax debts
In countries where people don't want to hold the local currency, they exchange whatever for local currency when they need it.
That's where "or someone you want to trade with" comes into play. It turns out it's highly useful to have the currency that ~300M people with the largest tax debts in the world need. There's no other currency backed by that much violence.
You can always be assured there is some American who desperately wants to stay out of jail, and someone will want to buy their stuff.
> it's highly useful to have the currency that ~300M people with the largest tax debts in the world need
The drivers are consumption and investment. Not taxation.
If you want to sell to the richest consumers in the world, you get dollars. If you want to finance something from the deepest financial market in the world, you accept (and repay with) dollars. (Both of which drive demand for, and thus deepen liquidity around, dollar-denominated financial assets.)
Demand for currencies and the level of taxation are barely correlated.
Storage Wars exists for this
As somebody already pointed, you should always ignore the Austrians.
Now, keep in mind that "business as usual" is different from "not an issue". The MMT folks will be able to tell you exactly what the consequences are (a hint, they are not very different from when it was 95% of the GDP), while the Keynesians will rush to tell you that the stuff the MMT people are talking about isn't as important as other stuff the government could be doing. Notice that both can be correct at the same time.
Empirically, at some level of inflation the Keynesians become just wrong. Most people usually stop being Keynesian at that level.
What's the difference between MMT & Keynes? Keynes is the one who gave the "what you can do you can afford" speech. IMO (some) MMT folks are more Keynesian than many modern "Keynesians".
"Keynesians" are not people that talk about the ideas Keynes had. It's quite common for most "ians" or "ists" to not push the ideas their name implies.
Yes, MMT is largely based on Keynes ideas, so they will say a lot of the same that Keynes actually said.
At the same time, "Keynesianism" is more of a political movement than a scientific school (although, it's a well informed one). That's why they can be right or wrong independently from MMT. "Monetarism" is also a political movement, that people often confuse or try to claim to be the same as MMT.
Keynes was aware of the inflation problem.
Having an economic science without politics at all isn't really possible - you have to define a goal for economic development to evaluate different approaches. And defining that goal introduces politics into economics. "Development for what or whom or whether at all" simply can't answered in a neutral way, it will always be in the interests of some and against the interests of others.
Isn’t the whole point of a ‘scientific approach’ to reduce biases and to study the problem independently of how the problem affects us? Why do we call things sciences but we’re unwilling/unable to divorce our biases from the process of studying a thing?
My background is in educational science where we face similar dilemmas. In both fields I'd say there is no conflict between scientific rigor and political goals as long as you make your goals transparent.
The fact that you want to study economic processes because you want to e.g. better the live of the poor half of society does not mean you can't apply scientific principles. But the results will not necessarily be applicable for those who think a rising tide lifts all boats and therefore want to develop the economy in the interest of the upper class.
In fact I'd be suspicious if people claim to be unbiased in any field that even remotely has something to do with humans or society - it usually just means they either hide their interests, or aren't aware of their biases.
> I really need some politics-free scholarship on this.
It's impossible to discuss GDP without politics, could you describe exactly what it is about political discussion that you'd want to avoid?
If it’s impossible to discuss GDP without politics, then it’s impossible in our current political climate to discuss whether or not debt as a function of GDP is a valid measure of an issue, and the practical effects of that issue.
It would seem that functionally the only real world impact would be spending more money to service that debt.
Ok, what about just cancelling that debt? Some economists have said “it’s money we owe ourselves”, so why not just forgive ourselves of our own debt? What would be the real world impact? What would happen?
We keep attaching political value judgments to this without reasonably discussing the practical implications free of our own political dogmas.
>Ok, what about just cancelling that debt? Some economists have said “it’s money we owe ourselves”, so why not just forgive ourselves of our own debt? What would be the real world impact? What would happen?
It's tied to Treasury Bonds that people hold so they would become worthless.
Yeah. "Cancelling the debt" sounds great. "Cancelling my pension or my IRA" doesn't sound so good.
Eventually all the debt is canceled right after dollar looses it's reserved currency status
You keep using words like “us” and “ourselves” but I don’t think you understand that you’re not in the same class as the people who lend the money or the people who lobby for how any public resources are going to be spent at all.
> Ok, what about just cancelling that debt? Some economists have said “it’s money we owe ourselves”, so why not just forgive ourselves of our own debt? What would be the real world impact? What would happen?
It's not money we owe "ourselves", it's money we owe each other. When you buy government bonds you're lending money to the government. Cancelling the debt is just stealing the money everyday people and investment institutions have lent to the government. What would happen is people would lose a huge portion of their investments and pensions and it would be catastrophic.
Honestly it's wild to spout an opinion in this thread if you don't understand this.
Gortok is very obviously talking about red/blue team bias, trying to get objective scholarship on the issue that is unbiased in that sense.
That wasn't so clear IMO, or do you see those three schools (Austrian, MMT, Keynes) mapping cleanly to the two teams somehow?
It's more about how random bits and blurbs from every school are used to suit the politics of the day.
> MMT folks
Does this still have purchase? I thought following post-Covid inflation, the MMT folks took a backseat (in politics).
“Stephanie Kelton: Have you considered the possibility that raising rates might move inflation higher?
Jason Furman: No”
Covid really exposed who did and did not understand what they were doing.
> Covid really exposed who did and did not understand what they were doing
Who, in your reading, is the dummy in that exchange? (And what does it have to do with MMT following post-Covid inflation.)
MMT - it was a flash in the pan pre-COVID during the "capital is infinite / ZIRP" era. It was used as a political tool to justify increasing deficits/debt.
The challenge with this problem set is the timeline is tricky. At some point the bridge can only handle so much weight before it buckles and collapses but we don't know how strong the bridge is and we have no way of measuring it.
MMT is the equivalent of saying the bridge doesn't have to worry about physics because (a) we said so and that the (b) bridge hasn't broken yet so its fine. It is a bad economic philosophy.
I’m not economist but my impression when I learned about MMT is that it’s predicated on the idea that money isn’t like bridges at all. And is actually at this point of history a purely abstract model where “we said so” works. Meanwhile lots of people really believe a country can “run out of money” or whatever. You run out of trees, teachers and nurses, not money. Anyway what’s clear to me is that the metrics we picked like gdp or debt ratio or whatever aren’t helping us make good choices.
It is the epitome of hand wavy economic philosophy. If you think about the uber simplistic version of a credit card payment - now extrapolate to nation states where you have a myriad of debt types, debtors, swaps, much larger payments, longer timelines you can keep running your debt/deficit for a long time. However if you grossly outstrip your ability to pay at some point those incredibly complicated structures do buckle and trip the system. That the timeline is further than we thought doesn't mean it won't happen. MMT essentially says don't worry about it because it hasn't happened yet. We can spend our way out while trying to say our obligations are of little weight.
It's a garbage economic theory - strictly to justify greater spending from our politicians. In time it will be proven out to be a failure of human thinking - it is a siren call.
I dunno it seems to me that whenever the Democrats are in office the deficits start to go down; and whenever there is a Republican in office they tend to go up. That's been the pattern my whole life so far.
Like, you say the two sides are the same because one wants to spend endless money on wars and the other wants to spend endless money on social programs, but we only ever spend endless money on wars. There's no spending comparable to war on poverty / illiteracy / sickness / homelessness.
Same observation. I’m beginning to think that it’s not about “spending” like if money was a finite resource. It’s really about the outcome of the policy: more power for elites and more access to energy and resources; vs more power and independence for regular people (and thus less for elites relatively speaking). From a “spending” perspective you could really do both and in the real economy they don’t even compete for the same resources.
You don't have to speculatively both sides the issue. There is a track record: https://amarkfoundation.org/reports/u-s-presidents-and-the-f...
Some of this is political, but Trump especially wildly makes a mockery of Republican supposed deficit hawkishness, not based on ideology, but by lack of a competent cabinet.
curious question as a canadian. when our prime minister makes a budget, it really is his fault. He runs parliament and executive functions. The budget in the USA is supposed to be a congressional matter so why does the president get any blame?
I view it as a rational play of prisoners dilemma in a nation with central bank and fiat currency. You will ~always lose (well until things get hyperinflationary) to someone promising OPM without more taxes. The system since the 70s ensures that.
the left says it’s fine when we spend the money on social programs.
FWIW, for every dollar given to people for social programs like the child tax credit, they spend $1.50-$2 locally. This seems fine to me & it was popular country-wide. Meanwhile, we've gained nothing from the Iran war. We've obviously lost money and probably weakened our global standing and strengthened some of our enemies. It is also unpopular with the people. You don't have to "both sides" every issue. You can assume republican leadership is generally bad and don't have to give them the benefit of the doubt on issues you're not studied on.
https://www.ncsl.org/state-legislatures-news/details/tax-cre... https://economicsecurityproject.org/resource/public-opinion-...
Here's the real issue. Economic innovation only really happens when the government is spending big on some issue. That's at least half the reason war advances technology so fast. It's not like Ukrainians weren't able to figure out drones 5 years ago.
Stopping spending kills the economy. Which kills tax income. Which puts far more stringent limits on spending. Which reinforces the need to stop even more spending.
The parties were not symmetric on this issue. They were not symmetric in terms of actual behavior (as in how much debt each added when in government) nor in terms of rhetorics. For a start, Democratic party was acting mostly in centrist technocratic manner and rather then radical leftist manner you are implying.
It is really not necessary to knee jerk bothside everything.
1/3 of the debt has come under Trump. This isn't political, it is just a fact.
He passed tax cuts (which are the real debt driver) that are just not sustainable. Without those, we have a reasonable debt to GDP ratio.
Canada had very high taxes covering everything from income to sales and yet our debt is ballooning at the federal and provincial level.
Its like saying that uncle bob has a ton of credit card debt because he doesn’t make enough money and not because he spends too much.
Disclaimer: lay person, not American or Canadian.
Whilst I understand your point in isolation, I don't understand how it refutes GP.
AFAIK, the current US administration has cut spending on most things (the military and ICE being notable exceptions).
As such, the suggestion that the ballooning debt is due to tax cuts seems perfectly valid.
And the other side would say that if we cut welfare spending we'd have a reasonable debt to GDP ratio.
It's very much political and it's a joke to pretend otherwise.
Yes "If" spending is cut or "If" taxes are not cut then you might have a balance.
But just implement balanced budget goals. Accept at most a deficit of 1% in the budget or whatever. Allow for a deviation from this to do QE but require a more qualified majority and limit to 1 year only.
Want to cut taxes? Fine - but don't do it with deficit spending. Want to increase welfare spending? Fine - but remember to then cut somewhere else OR increase taxes.
The fact that one side can implement large tax cuts funded by borrowing over and over (and still be elected again) is absolutely _crazy_ on a scale that is perhaps only rivaled by the healthcare system.
They can say that, but it will not be true. The tax cuts, plus new military spending and new ICE spending dwarf welfare they want to cut.
This.
ICE is now larger and more expensive than the entire United States Marine Corps.
Let that sink in.
Not only that, we also seem to start a new war every 6 months. Demanding money for each one of them. SS/Pensions/Medicare seem to trend nowhere but up. And like Santa Claus the party in power keeps handing out tax cuts.
We have to make a change guys. The old ways aren't working. We can't be distracting from the central problems by yelling "welfare!". That doesn't work anymore.
This is kind of the point though.
Cutting welfare spending will get us no where. The majority components of the federal budget are Defense, SS/Medicare/Medicaid, and debt payments. Not the forestry service or what we commonly know as welfare. At this point, even cutting everything else to zero still lands us in deficit. (Unless taxes are raised.)
To be serious, we need to talk about what cuts are to be made to SS/Medicare/Medicaid and the military. But no one wants to have that discussion. So we throw out meaningless issues like welfare and the forestry service. We quibble around at the extreme edges, never addressing the central problems. That's the essence of the politics being discussed. Those politics make the issue impossible to fix.
I honestly don't know why it's so hard? I'd be totally willing to countenance the necessary cuts to the sacred cow programs at this point. Why is everyone so opposed to it?
> To be serious, we need to talk about what cuts are to be made to SS/Medicare/Medicaid...
To be serious, we need to talk about the funding of it, not the cutting of it. If we raise the cap, it gets more funding.
If we increase Medicare taxes and then go to a single payer system, it could be funded as well.
There is zero reason to have for-profit health insurance.
> To be serious, we need to talk about what cuts are to be made to SS/Medicare/Medicaid and the military. But no one wants to have that discussion
The military-industrialist complex is a socialist jobs program.
Would have had, not have.
The problem isn't politics, its been made to look that way but the issue is that the people who would know have been silenced in a way that the general public hasn't recognized. Its not in the benefit of the corporate overlords that you be properly educated on this.
I'll give you a brief TL;DR on the issues.
The wealth of a nation is based in its ability to produce primarily goods, and sometimes services. Pricing is a signaling mechanism that allows efficient resource allocation of both goods, and factor market labor.
When misallocation results, you get things like busts and booms where the benefits are front-loaded and a resource exhaustion cycle takes place. There are constraints which cannot be breached for any length of time, such as wages being lower than the cost of living enough to support a wife and three children to 18, and other things. Legitimate business can't operate if it can't make a profit.
There is silently nationalized industry that is unconstrained via a cycle of money-printing that has sieved assets into few hands, and risk concentrated in few hands. This is part of the danger of the ECP, and other fundamental failures related to centralized systems.
The Austrian school lives in the future. The future under a breakdown of organized society is one of death and potentially extinction. We depend on food production in ecological overshoot which depends on technology and farming. The 1970s represented ecological overshoot. When that fails you get shortage, that then sustains, famine, slavery, death, and then extinction.
Under socio-economic collapse everything fails. Currency is abandoned. Exchange cannot happen. The store of value and exchange of value fails. This happened during the Bronze Age (of which we have very little records that remain).
If these happen for extended periods of time, capital dries up and you get something like the great depression, Nintendo, and other places where logistics refuses to deliver goods at any potential profit because they were burned too many times.
There exist systems that will fail eventually and predictably (in general), but which you cannot predict specifically when those failures will happen, its unknowable, and the effects one would use to justify any decision lag behind the objective indicators of the actions that needed to be avoided.
Money-printing extracts value from those that hold the currency through the cantillion effect. Its an extraction of unpaid slave labor. Eventually it exceeds the store of value, and the businesses that normally produce stop producing. Exchange stops, etc. AI presents a unique spin on this as well because it accelerates the corruption of signalling presenting false signals chaotically in both labor and good markets.
In positive feedback systems, these type of systems commonly run-away and converge at a point of calamity. When they do the dynamics are unstoppable.
The MMT folks are delusional, having rested quite a lot of their false justifications on unsound practice to justify extraction of value.
The Keynesian's aren't so different from the MMT folks because they improperly look at certain things only in isolation with a seeming mental block to all other things, which is a form of false justification.
The bankers (if you can call them that) have corrupted leadership, and enabled sieving through non-reserve debt issuance. The mechanism over the years is leveraged buyout. The business cycle today largely runs on the ponzi cycle with debt issued upfront providing benefits upfront, followed by enshittification as the resource exhaustion cycle runs its course.
Chaos is fundamentally destructive. Large societies don't implode when they have stable stores of value, a rule of law (not by law), and manufacture goods their populace needs.
Market dynamics fundamentally fail to operate as a market under slave labor as a function of the cost function for the majority of participants. It doesn't matter if that labor is provided by a foreign power with costs socialized, or stolen through the currency through deficit spending. When you cannot know correct prices, everything falls apart at fundamental levels but you don't see it until its too late after which point the only thing you can do is start over; but existing structures under such systems seek control to the point of extinction.
No one gives power up willingly, and those that have it seek to destroy the ability for others to take it.
You can't ever make a consensus when a good portion of the people part of that consensus have become delusional, often without them even realizing it.
Austrian school is less an academic discipline or study of economics and more a post-hoc justification for libertarian philosophy. So you can freely ignore them.
Maybe decide if the right or left has better priorities. Do you think spending money on guns and war like the right is good? Do you think spending money on social programs to be good? Seems like an easy decision to me, but hey, i have empathy and don't like killing.
The Freakonomics podcast episode "Ten Myths About the U.S. Tax System (Update)" actually goes into a lot of depth about this issue: https://freakonomics.com/podcast/ten-myths-about-the-u-s-tax... (Includes transcript)
To oversimplify, basically:
With the exception of Social Security, we (the US) has a balanced budget. No politician will get re-elected if they cut social security. (Thus) the politicians are working on the problem very quietly.
The general problem with Social Security is that it pays out way more then it takes in. Part of the issue is that everybody of retirement age collects social security, including multi-millionaires.
The problem with multi-millionares is not that they collect. It is that they do not pay as much as they could/should.
I’ll read that article later, but that doesn’t sound right — there can’t be so many multi-millionaires that them getting free money is stressing out the system.
Quick random googling, I’m seeing the number 3.2% of retirees have more than $1m
https://www.investopedia.com/how-many-people-really-achieve-...
And I can’t imagine social security would become suddenly profitable by a <3% population delta
Furthermore, multi-millionares have at least 2 million so they are significantly less than 3%.
Social security is self funded and is actually a buyer of US debt. So there is no direct connection between social security shortfalls and US gross federal debt.
To be slightly fair to the parent comment, it seems at least a bit valid to choose whether to consider the social security tax to be revenue to the government and social security payments an expense or to treat them as an entirely separate account. And the social security tax structure at least appears to be quite regressive.
As an analogy: do you think that Costco generates most of its profits from sales of goods or from membership fees? Both answers seem valid.
> > I really need some politics-free scholarship
> The Freakonomics podcast
Yikes.
All the great Western hegemonic powers have used public debt to finance the requirements and ambitions of the state. This was true of Spain in the sixteenth century, Holland in the seventeenth century, England at the height of its power during the eighteenth and nineteenth centuries, and the USA since World War II [1]. Public finance is a force multiplier that enables the government to undertake far greater civilian and military projects than it could otherwise achieve. Everyone knows this, including the people who are running the U.S. Treasury and the Federal Reserve.
As a percentage of GDP, government debt is high by historical standards, and it is rising at a fairly rapid pace. That could be a problem if it continues unabated. But there are two solutions: reduce spending and/or raise taxes. Most U.S. federal expenditure goes toward either defense, entitlements or interest on the debt, so it seems unlikely that spending will fall very much. That means higher taxes. At some point, the country will need to find a political reformer who can sell tax increases to the electorate. Until then, the crisis just continues to quietly grow.
[1] Giovanni Arrighi (1994) The Long Twentieth Century: Money, Power and the Origins of Our Times
https://www.amazon.com/Long-Twentieth-Century-Money-Origins/...
It's not a problem so long as borrowing costs are low.
Now if USD loses reserve status, that could be very problematic, since the US basically spreads its borrowing costs to the entire world.
No, it's still a problem. The reserve currency just raises the headroom by something like 20 points by making cost of borrowing lower than it would be otherwise. There is no free lunch, just subsidized lunch.
Italy and Greece have been running at over 100% for ~30 years. It's not great, but it's also not the end of the world. It's even less bad for the US, as long as lenders still trust that the US government will pay them back.
30% of GDP would be better, but 100% isn't going to collapse the US economy on it's own.
The ratio itself is less worrying than how fast the ratio is increasing. It was under 80% in 2019 and under 40% in 2009[1]. (This is excluding debt the government owes itself, which I believe WSJ is also doing).
[1] https://www.pgpf.org/article/how-much-is-the-national-debt-w...
The Greek economy has collapsed at least once in the past 30 years (maybe more, that's just off the top of my head), and had to be rescued by the EU. So I wouldn't use that as an example.
Borrowing costs have already gone up. The 10 year treasury yield is already double from where it was during the 2010s. There are other factors contributing but it’s worth mentioning as a partial factor
Agreed. And driving 95mph is not a problem as long as there aren't any tricky situations hidden a few miles down the road.
It is not just reserve status that keeps borrowing costs low. It helps, but it's not the whole story.
The US dollar was the reserve currency in 1979. That didn't keep borrowing costs down.
The US dollar is now also the oil exchange currency, and the US is a major oil producer so harder to squeeze. Remember what else happened in 1973 and 1979?
What's the point of comparing quantities expressed in different units?
Debt is in dollars, GDP is in dollars per year.
A ratio (e.g. 100%) of quantities expressed in different units can be useful. "How many years of GDP is the debt?"
Miles per gallon is another example. It's a useful number.
GDP provides a rough measure for how fast a country could drain its debt—similar to looking at debt-to-income ratio when issuing mortgages to individuals.
"debt" here is government debt -- federal debt to be precise.
"GDP" is just a measurement of economic activity. It is not a measurement of income. It is not government income. It is not even government cash flow.
Given that US largely taxes income and capital gains both of which are related to GDP it's a fine proxy.
Nations also have debt to income ratios. We should be comparing those instead of debt to GDP. If you've ever seen one of those UK is poor than Alabama memes, you know that GDP is a poor and tendentious measure of well-being because UK quality of life measures put it above all about the richest states in the US.
GDP is also an amalgam of various indicators of general economic activity: Consumption + Investment + Government Spending + (Exports - Imports). It might be all in dollars, but it is kinda like adding $X of Apples with $Y of Oranges.
Its good as a rough score to do relative comparisons between countries (and actually Debt/GDP is useful in that sense too), but as an absolute amount it doesn't mean all that much.
What matters is how much the debt servicing costs versus government revenues. Also how much that debt is growing (deficit) and/or what it would cost to reduce it.
But there's not much of a consensus around what is too much or too little.
I suppose 100% Debt/GDP is a good arbitrary number to raise the alarm, but it doesn't mean much on its own.
GDP is literally just in dollars as a unit
A quarterly debt to revenue ratio would be a lot more illuminating. There are very good reasons not to care if that ratio goes out of whack for one or two quarters. But any bro divergence that persists is bad.
This ratio isn't just better because the units match, you don't have to adjust the units for growth and inflation.
If someone has a debt it's entirely sensible to compare that to their yearly income, of course this tells you something. GDP is a proxy for potential yearly income in taxes for the government.
And now debt is 1 GDP year. I don’t see the problem.
I thought the US crossed that mark long ago. According to FED [1] it was in 2013. Could someone explain what the WSJ means given the article is behind a paywall.
[1] https://fred.stlouisfed.org/series/GFDEGDQ188S
Triffin Dilemma
https://en.wikipedia.org/wiki/Triffin_dilemma
Link is not public
Everything will be great until the default happens. After that, everything will still be great, we will just have less reputable friends. That's how spirals work.
As long as the debt is denominated in US dollars, default is a choice. The US cannot be forced into default; it can always choose to inflate away the debt instead.
Default itself will cause massive inflation, default is not a way to prevent inflation.
Get ready for hyper-inflation. It's a good time to be a debtor!
This isn't great but it also isn't a magic threshold. GDP is annual economic activity and debt is cumulative.
Inflation is also a factor, in absolute terms. In 2025, interest payments totaled $970 billion, or 3.2% of GDP.
The US public debt-to-GDP ratio peaked at 106% in 1946 following WW2. Next year the US will likely match or exceed that, imo.
Who is the debt owed to
What will they do if it was repaid
Why do people keep lending money to the US government if they think it's a problem
The debt is owed to other countries, and private bond holders.
They can request their money back, refuse to purchase future bonds, and if things get really dire, potentially go to war with the US (Don't worry, this is beyond unlikely).
Historically lending money to the US government has not been a problem. It's been a low earning but guaranteed return. Many of those loans have very long terms, and so even if it's a problem today, it wasn't when the loans were initiated, and it might not be when loans issued today come due.
Government debt is not like personal debt, for a lot of reasons that I am not smart enough to explain.
> Don't worry, this is beyond unlikely
Ch-eye-na
China doesn't hold that much of a percentage of our debt any longer.
Somewhere around USD700B. Of the USD39T, that's obviously not that large of a lever.
Pretty sure the Chinese have been implementing a policy of diversification at a minimum. (Probably a more likely explanation is they are implementing a policy of delinking and not just diversification, because the share of US Treasuries they seem to be willing to hold keeps dropping.)
They continue lending to the US government because they are demanding a higher rate of return. The risk premium (i.e. the problem) is priced in.
Structurally a large chunk of the debt is owed to a different part of the federal government, the Federal Reserve.
That's an important question, and why US Gov Debt is different than Japanese Gov Debt, which also has a higher debt-to-GDP ratio than the US (due to decades of "zombie economy").
About 90% of Japan's debt is held by Japanese themselves, so it's much more insulated from a crisis that can't be resolved through domestic economy policy. (It could in theory print its way out of it.) Whereas about 25% of US gov debt (which is 3x Japan's in nominal terms) is held by foreign governments, including very large amounts by China. This, combined with the US being the main currency used for international transactions, gives those countries leverage over the US economy (though selling off the treasuries would impact their own holdings as well), and conversely means that US monetary policy has a global effect.
> U.S. Debt Tops 100% of GDP
Does not matter as long as they control the printing press for the reserve currency of the world.
Can't we just print more money to pay off the debt?
And there will be no consequences since we're the reserved currency for the world backed by the most powerful military in human history.
Printing more money will speed inflation.
Apparently not due to USA status as the global reserve currency.
> Can't we just print more money to pay off the debt?
Indeed
> And there will be no consequences since we're the reserved currency for the world backed by the most powerful military in human history.
Yup, and it works until you're not the reserve currency anymore, which ... happened before quite a few times (Dutch guilder. French franc. British pound)
But hey, this will be in what ? 50 years ?
Half of us will be dead by then, so who cares?
Heck yeah! No problems here! Its future generations problem to worry about!
and wasnt GDP boosted by the inflation from Biden era?
And wasn't inflation in the Biden era a consequence of the poor handling of the economy during Covid the previous years?
Jesus died carrying humanity’s original sin.
Recently, President Trump seemed to cosplay as Jesus. In that case, could he also die carrying America’s economic original sin and thereby cancel the U.S. national debt?
It’s not as good as it might sound. By “canceling” US debt, it would mean that the government failed to pay back those who lent it money, of whom the majority are US nationals themselves.
> majority are US nationals themselves
Including banks and pension funds, all of which would go broke overnight if the U.S. actually defaulted.
Well, he’s single handedly responsible for 1/3 of the debt! And, will add more before his term ends either by force, naturally, or duration completion. He don’t know how to cancel debt, but would happily add more to it and laughingly take home that cash.
Congress is in charge of budgets, Trump isn't a dictator so he can't actually do whatever he wants.
You should tag this with sarcasm...
And now Trump and the GOP want to further increase debt by adding billions to ICE budget which is what this current shutdown is about.
And something like half again as much for the military.
War in Iran just topped 25 billion so far