In the American political conversation, the national debt has become something almost mythical. It has become a metaphor for all that ails the United States, a scary monster under the bed.
It isn’t. It’s an accounting concept.
The debate over deficits and debt is frequently clouded with sloppy language and sloppy thinking. Here, as something of a primer, are some basic concepts every American — and every member of Congress — should understand about the U.S. fiscal situation. In honor of our colleagues over in the Outlook section, who often offer “five myths” on this or that, here are five truths about the deficit and the debt.
1. That gap between revenue and spending? It’s the deficit.
The U.S. government took in about $7,000 in revenue for every man, woman and child in the United States last year. It spent more than $11,000 per person. The gap between those numbers, about $4,000 per person, is the deficit, and it was covered by borrowing money.
Some politicians speak as if high levels of government spending and a large budget deficit are the same thing. This isn’t so. You could have a government that spends $11,000 per person — but with taxes to match it — and no deficit. Or you could have a bare-bones government of a libertarian’s fantasy that spends only $7,000 per person but that runs a large deficit because it raises only $3,000 per person in taxes.
Inevitably, the debates over the proper size of government and the proper level of the deficit are intertwined. But they’re separate questions.
Think of it this way: There are rich people who borrow a lot of money, and there are poor people who live within their means. The question of whether someone is rich or poor is separate from the question of how much money they borrow.
2. How did we get all this debt? From deficits accumulated over 200 years.
Looming over 6th Avenue in midtown Manhattan is a clock ticking ever upward, showing the accumulated national debt. Let’s change that $14 trillion-plus figure into a more manageable number: The national debt works out to about $46,000 per American.
That level of debt has been accumulated over two centuries, rising rapidly in times of war and depression, rising slowly most of the time, and occasionally falling in times of prosperity and fiscal restraint.
But even if Congress and the Obama administration agreed to a budget for next year with zero deficit, the national debt would still be with us. It would take massive budget surpluses year after year to eliminate it. No one in public office has offered a plausible plan that would do that.
The good news is that there’s really no need to eliminate the debt entirely. Having no debt could be problematic. Government debt, in the form of U.S. Treasury bonds, plays a crucial role in the inner workings of the financial system, offering a what is considered a safe place for investors to put their money.
3. Not all debt is bad. Some debt is good.
There’s no doubt that debt can be dangerous, but used correctly it can be beneficial. For example, a family might borrow to buy a house or for a child’s education. So long as the family is careful about the amount of debt it takes on, it could pay off handsomely — giving them a comfortable place to live for many years and ensuring their child has higher future earnings.
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