National debt is actually good

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Opinion Columnist Mohammed Rawwas explains misconceptions on national debt in the United States.

MOHAMMED RAWWAS, Opinion Columnist

A 2019 Gallup poll found 50 percent of Americans worry a “great deal” about “federal spending and the budget deficit,” 30 percent a “fair amount,” 15 percent “only a little” and 5 percent “not at all.” In 2018, there were continued efforts in the Iowa legislature to call for a convention to add a Constitutional Amendment that would force the federal government to pass balanced budgets. More recently, former mayor Pete Buttigieg has frequently stated that he believes the Democratic Party should start caring more about the deficit, joining right-“libertarians” in echoing Republican talking points. And yet, not only is this worry misguided and unnecessary, but actively damaging both to political discourse and material reality. In fact, the exact opposite position is that which actually holds true.

Before we can talk about how debt is good, we must first establish that it is not a detriment. This is simple enough: no one can point to any material harm being caused by the national debt. But of course, things are not so simple; they may point to some potential future event, such as “forcing future generations to pay off debt” or defaulting on the debt. The problem with this, of course, is that both of these events are impossible, and belies a complete misunderstanding of federal budgeting. Future generations won’t pay off the debt because taxes don’t fund the federal budget. The basic tenant of Modern Monetary Theory is that the government, as a sovereign entity, is the source of money, this construction and as such it does not require taxation to fund its efforts. Taxation is an inflationary measure, not the government’s source of income. The only limit to how much a government can spend is determined by the wealth that the country produces. Furthermore, we cannot default on our debt because large sections of the U.S. debt is money that the federal government owes to itself. Nearly 30 percent of U.S. debt is held by the U.S. government itself, with the Federal Reserve holding over 10 percent. U.S. and foreign investors make up the rest, with approximately 30 percent each. Furthermore, the Federal Reserve can engage in quantitative easing, as it did in the wake of the 2008 financial recession with QE1, 2 and 3, in which banks were bailed out and the debt was simply written off.

Furthermore, having foreign investors invested in our debt means that other countries now have a vested interest in the continuing prosperity of the United States economy. The fact that China holds some of our debt is a very positive development, as the success of the U.S. economy is now directly correlated with them being able to collect on their investments. This fosters a more diplomatic and mutually beneficial relationship between China and the U.S., as it does for other countries who hold U.S. debt.

Not only is debt not a problem and not only is debt actually a positive development, but current narratives about how worried we should be about our debt is actively damaging, both to political discourse and in material reality. This is a bipartisan narrative; in fact, it was Bill Clinton who ran budget surpluses during his tenure as President. The poll I cited above showing 95 percent of Americans are to some extent concerned about the national debt also speaks to the bipartisan nature of this belief. And yet, the truth is that this talking point is cynically weaponized in order to push for austerity measures that usually include cuts to Social Security, Medicare, Medicaid and welfare programs. This narrative actually has an impact on the working class, as the one-sided class warfare continues to rage.

No policy is inherently a problem because it costs a certain amount; the question always relates to the benefit that such a policy would provide. Funding for the border wall, for example, is bad because the border wall is itself a harmful policy, and thus the government should not waste money on something that is not only unnecessary but actively harmful and immoral. But the determinant factor is never the cost.

Finally, we understand that the budget narrative is selectively utilized to attack social democratic reforms but not addressed when it comes to military spending, which Republicans increase more than Democrats. We all know that the left is actually more mindful to the budget than the right. In the U.K., for example, the Labour manifesto was fully costed, while the Conservative manifesto was not, and yet the Conservatives still attacked Labour on the premise that their policies would be too costly. In the U.S., Democrats (who are decidedly not left but are further left than Republicans) have had a much better track record when it comes to the budget: Clinton was the last to run a surplus; Obama cut the deficit in half while Bush and Trump increased it. Bernie Sanders’ proposals for Medicare for All, tuition-free college and student debt cancellations all come with tax policy that will fully fund these programs. The crucial point here, however, is not to point out Republican hypocrisy or commend the Democrats for paying mind to the debt. Rather, it is to press them to be less concerned with the debt, and to focus more on helping the working class, regardless of its cost, because such a hypothetical, nonexistent “cost” is irrelevant compared to the actual cost of maintaining a system of poverty, homelessness and exploitation. Buttigieg is the perfect exemplification of a right-wing hack who wants to move the Democratic Party in the opposite direction.