The national debt

["Charles Brown" <CharlesB@xxxxxxxxxxxxxxxxxxxxx>]

The national debt


By Greg Godwin


Candidates from both political parties agree that paying down the national debt should be a top priority in the next few years. What is the national debt and why should we be eager to eliminate it?

When a government spends more money than it collects from taxes, economists describe that government as engaging in deficit spending. Governments can issue promissory notes to erase these shortfalls. These notes - often bonds - attract funds from investors by paying attractive interest payments. By purchasing bonds, investors are loaning money to the government, and, thus, covering the deficit.

If deficit spending continues over a period of time, the government can accumulate a substantial amount of money owed to bondholders. Economists call this accumulated deficit the national debt. The size of this debt can vary from time to time. At the end of World War II, the U.S. national debt stood at 109 percent of Gross Domestic Product (GDP) - the total value of goods and services that year. Today, the national debt constitutes about 39 percent of GDP.

Since the debtor - even the U.S. government - must always submit to the terms and conditions of the lender, debt is always a relationship of domination. Bondholders only invest if they can achieve an acceptable level of interest. It is this domination that led the Catholic Church before the triumph of capitalism to condemn usury - the practice of lending money with interest - as a mortal sin.

It is tempting to think of the national debt as though it was like individual debt. Every debtor recognizes the need to reduce debts incurred by credit cards, second mortgages, cash advances, and other methods of stretching income beyond salaries and wages.

Individual "deficit spending" can devour the individual, spawning a spiral of borrowing that ultimately impoverishes the unfortunate debtor (Household debt has grown from 85 percent of personal income in 1992 to 103 percent of personal income by 1999). The media and the operatives of both political parties invite us to view the national debt in the same way.

However, that is the wrong way to look at the national debt. To explain it by likening it to the plight of individual debtors is sheer demagogy. Such reasoning commits the Fallacy of Composition, reasoning that what is true of the parts must be true of the whole. Logicians often illustrate this blunder with the example of a rectangle. Each side of a rectangle - the parts - is a straight line, but certainly the whole - the rectangle - is not a straight line. Similarly, because individual debt can bring devastation to the individual debtor, it does not follow that the national debt must also bring ruin.

In fact, there are times when an expanding national debt is essential for reviving a depressed economy or financing the national defense as in World War II. Deficit spending and accumulated debt are among the many tools available for shaping economic policy. They are not, as the bipartisan political leadership would like us to believe, an economic original sin. Ironically, the Reagan/Bush administrations drove the national debt from 26 percent of GDP in 1979 to 50 percent of GDP in 1983 without any hesitation. This was done to reduce taxes on the rich and gorge an already bloated military. Their political heirs only oppose deficit spending and a large national debt if they benefit poor and working people.

The current call for paying down the national debt is merely a smoke screen for further reductions in social spending. The U.S. has undergone an enormous shift in income from the working class to the rich. In addition, our government has done far less to alleviate the pain of poverty than any other wealthy nation. Ruling elites would like to use the fear of debt to further ratchet down assistance to poor and working people Should the national debt prove to be an economic burden, we have a simple solution. Tax the rich.