Welcome to the next chapter of the endless debt debate. The release of a Congressional Budget Office report on the next 10 years of the U.S. economy ends a brief lull in Washington. As we return once again to our regularly scheduled program of “Crisis and Impasse,” let’s take a moment to consider the following heretical idea: We have no debt problem.
We have spent years demonizing debt, and now have an entire political movement dedicated to the proposition that government debt will destroy America as we know it unless something is done now!
Yet debt is simply a new form of currency that is issued, bought, priced and sold like any other currency, and the fear that it will fatally undermine the nation is much like the belief in the 19th century that paper dollars would destroy value and rob the middle class, or the fear that silver would do the same, or the concern in the 20th century (and now) that unless all value is tethered to gold, economies will collapse. The debt freakout is the latest installment, the only difference being that those who believe debt will destroy us have more political power. Debt may not undo us, but actions flowing from the fear of it could come close.
It’s not just the tea party movement, of course. The dangers of debt are preached widely. The establishment consensus is that there is too little growth and too much government spending everywhere in the developed world. Germany still hasn’t psychologically recovered from the debt and currency traumas of the 1920s. Brazil and much of the rest of Latin America are scarred by the memories of the 1970s and East Asia by the 1990s, when debt debacles nearly sank those economies.
Yet an amen chorus is not the truth, and consensus is not fact. Debt can be a fatal liability if used unwisely, but used well it can be a powerful tool. It allows governments, businesses and individuals to expand what they can do in the present in the belief that future gains will ensue. It can fund education, underwrite infrastructure and fuel research and innovation. The fact that debt is so often used poorly, to paper over problems or fund ephemeral spending, represents a serious and potentially crippling problem. But that is not an indictment of debt; it is an indictment of what is done with it.
The current assumption is that debt is out of control and has been for many years. Consumer debt in the early 2000s gave way to sovereign debt today, and Greece and its Mediterranean brethren are held up as Exhibit A in the prosecution’s case. Yet this animus harkens back to moments when shifts in the financial system have triggered anger and panic. Our debt fixation, then, may be less a product of debt itself than one of adjusting to a new currency.
Argument spans centuries
The tea party is less than three years old, but anxiety about the national debt extends to the early days of the American republic. Governments have often run up debts to pay for wars, and massive borrowing allowed the American colonies to fight the British during the Revolution. But then came the aftermath. The collapse of the first union of the states under the Articles of Confederation stemmed from the inability of either the states or the central government to repay those loans.
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