Does the deficit really matter if owed to ourselves?

Here’s an interesting paper from Steven Landsburg on the deficit and who might gain or lose from it: PDF Link

So, roughly 4% of tax revenue goes overseas, or just over $100 billion.

No, no they don’t. The bonds are not held collectively, they’re held by individuals. Now, the government could tax bonds away, in theory, but this would be cheating.

It’s really better to run high taxes in boom times & build up a surplus for recessions. Borrowing money makes the government indebted to a subset of its citizenry & servile.

I think that overstates things a bit. At least in the U.S., the government offers a service by selling securities. Rather than being servile, right now the Treasury is practically charging a few. The interest rates on some instruments are so low that for all practical purposes, they are just a safe place to park money. Even in good times, U.S. government debt is seen as a good safe place to put money you can’t afford to risk. If the government stopped selling bonds at all and tried to build up a surplus, where would it put the money? Banks would fewer safe places to keep their reserves, and the government would start competing with private capital for investments.

We would have to go back to stockpiling treasury in vaults.


Would you concede that in a boom, we should follow Keynes & raise taxes, keep new bonds to less than replacement rate, & not add more to the debt?

THe graphs on that page are just amazing. Look at . The generation born around the early 1920s, they fought WWII and incurred a huge debt to do so. You would think when it was over they deserved a rest and have someone else pay back the debt but in the post war years America’s debt decreased steadily, being paid by the same generation that fought the war. I have great admiration and respect for that generation, the “Great Generation”. It is easy for us to say they were racists, misogynists, etc. and sure they were wrong in those things but they were, indeed, a great generation who fought and worked hard and demanded little in exchange. In Europe that generation, after fighting the war rebuilt the entire continent. I salute that generation of which not many remain.

Then after that generation starts retiring and the Baby Boom generation takes over, around 1970, you see the debt starts rising again. The generation which grew up in comfort could not maintain the effort of their parents. The debt has grown steadily except for a marked decline in the 1990s under that irresponsible tax and spend Democrat, Bill Clinton. It is amazing how well propaganda works and how Democrats are still considered the “tax and spend” party in spite of all the contrary facts.

Yes, absolutely. I think there is probably an ideal range of debt that should be maintained during good times, with allowable excursions during bad recessions. I imagine that many an economist is trying to figure out what that range should be.

It really isn’t helpful to try and analyze national debt as if it was the personal debt of a given generation. Look at your graph. The surge in debt has nothing to do with irresponsible 30 year olds, and everything to do with Reagan’s military spending. The people in charge of the government tend to be in their 50 and sixties, not their 30s. Clinton was the first Boomer president and debt went down under him.


No, we don’t need to worry about it except: it will be paid off in future taxes, taxes that are over time shifting away from the very rich and corporations to poor and middle class tax payers, who will have to pay an increasingly crushing proportion, which will for all practical purposes enslave people to the government. The way around this is inflation. But the banking system in this country, as well as labor laws, are run in a way that makes wage increases drag far behind cost of living increases.

The debt started growing in the 70s and, in any case, as I said, I do not put the responsibility on the one man in the oval office but on the entire country who voted for those policies. It is very clear the country has changed and has been living beyond its means for quite some time now.

We don’t owe money to ourselves. We’re all individuals. Some of us are borrowing and some us are lending.

Government debt is created when the government sells bonds to people. Somebody buys the bond and gives the government money which the government spends. Then at some designated point in the future the government has to pay that person back their original money with some extra money as interest. To obtain the money to do that the government collects taxes from its citizens.

So if you’re one of the guys that loan the government money and collect the interest, you come out ahead. If you’re one of the guys who the government spends its money on, you come out ahead. But if you’re one of the guys who put the money in that those other guys collect, then you come out behind.

One problem with counter-cyclical tax policy, however, is the uncertainty it creates in the economy. If tax rates are always fluctuating, it’s harder to accurately price things and determine efficient paths for business.

Counter-cyclical fiscal policy has a dismal record, and even Keynes was against it eventually. The money comes too slowly, and the ‘need for speed’ directly conflicts with the need to spend wisely, leading to inefficiencies.

I think it’s fair to say that if you have a debt, the best time to pay it off is during a boom. But the best fiscal policy would be one of low debt and reasonably stable taxes.

I think you are misreading the graph. The increase in debt in the 70s was a blip up an down. It would be odd not to see those occasionally, barring an absolute cap on debt. The real increases coincide with first WWII, then Reagan ramping up defense, then the current wars. We spend 21% of the budget on defense (33% if you exclude SS and Medicare which are funded separately). We can certainly blame who got elected on the people who vote, but it isn’t a sense of entitlement that drives up the debt, it is a sense of fear.

Low debt is relative. As I said, a certain level of debt is good for the whole economy. That said, I believe the level should be lower than it is right now. I agree that stable taxes are good thing, but that means that we can’t lower taxes all the time. When times are good and tax receipts go up, you need to lower debt, not buy votes. Otherwise you end up where we are now, needing to deficit spend with preexisting deficits created by cutting taxes while increasing military expenditures.