This quote is from a comment left in Bradford DeLong’s blog:
“It never ceases to amaze me how many people (like one of the commentators above) make the mistake of believing that governments are like people. People have finite lifespans, and so they must repay money they borrow. Governments do not have finite lifespans (or if they do they have indeterminately long lifespans), and so they do not have to pay back money they borrow-they simply must service the interest on it.”
Debts never have to be repaid. You just have to “service the interest rates”. Is this the mentality of the majority of people around the world?
Well, I don’t see that as far off from the truth. The U.S. government has not successfully paid off its debt since Andrew Jackson was President. Yet, the government seems to have no problems borrowing.
However, I believe the commenter is too glib. Servicing the debt requires taxes and the American public will not tolerate ever increasing taxes, so that puts a constraint on borrowing. A further constraint is that the cost of servicing the debt can fluctuate from year to year. So you don’t want to borrow expecting interest rates will stay this low forever.
I think the point of the comment was to suggest that as long as the government could pay interest, borrowing to spend is sustainable. Although the United States has survived a long time with a deficit, I do not think that current levels of spending are sustainable. Before the Great Depression (large wars aside), I don’t think the government borrowed as much as it did after 1929.
I think you’re just upset that most people are willing to tolerate more taxes than you (since I imagine you would rather your tax bill be zero).
In reality, federal income tax rates have tended downward for the past 50 years. Why? Because most people simply wouldn’t tolerate the taxes they were paying in the 1950s (when I believe the top tax rate was close to 90%). The amount of taxes people are willing to pay will certainly fluctuate, but history shows that there are clearly limits to what you can expect people to pay at any given time.
Suggesting otherwise may make for good zingers, but I don’t think it accurately represents political reality.
Current levels of spending are not meant to be sustainable. Much of the current deficit is a result of short-term efforts to stimulate the economy that will be over in the next few years.
And I’m sure you’re right the absolute amount of federal borrowing probably was greater the second half of the last century than ever before. But during that same period, the actual ability of the government to service that debt on the same taxation rates actually increased because of economic growth. Looking at debt as a portion of GDP, we actually see a significant drop on through the LBJ’s Great Society. Debt did not start accumulating again until taxes were slashed and military spending was increased under Reagan. Personally, I don’t see why we could not start reducing our indebtedness again if we only accept some modest tax increases and see an end to the wars in Iraq and Afghanistan. All of which are likely to happen in the coming years.
It is absolutely not clear that dramatic deficit spending will end in the “next few years”. The Great Depression saw over a decade of never-before-seen deficit spending (starting with Hoover), which only ended after the Second World War. If we are going to assume the free-market argument that government spending does not stimulate growth, then it’s obvious that with a failing economy in the near-future the level of government spending will actually increase, not decrease.
Furthermore, even if over a short-term spending decreases, the ratchet effect dictates that over-time deficit spending grows regardless. This suggests that all levels of deficit spending is unsustainable, even if it takes centuries for the State to go bankrupt.
This growth rate has started to stagnate, and as government spending begins to become a larger part of GDP then the economy will stagnate some more. At that point, the State might not be able to finance its debt (a problem which is currently occurring in many European States, such as Spain and Greece).
Reagan did not slash taxes. He slashed certain taxes, and raised others. Overall, taxes increased under the Reagan administration; Murray Rothbard wrote an article available on Mises.org on the topic.
Compared to other expenditures, I think the war spending is actually a minor fraction of our worries (even if you take into account all the other costs, such as future medical costs, et cetera).
No, they need to increase taxes and cut spending. And then after the debt is eliminated, they need to eliminate the income tax. But that’s in a perfect, world. The government will never increase taxes and cut spending because it would mean a revolution once people realize the situation we’re in.
