Bob Murphy: How Bad Is the National Debt?

Economist Bob Murphy explains the technical details of government debt and why Modern Monetary Theory is so dangerously wrong.

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Bob Murphy: How Bad Is the National Debt?

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How bad is the national debt? Just asking questions.

Our national debt—measured as federal debt held by the public—is over $27 trillion. That's approaching 100 percent of annual gross domestic product, which is higher than it's been since the end of World War II. So, are we screwed? 

Or are those of us who worry about numbers like this totally misunderstanding the nature of government debt? There's a school of thought called Modern Monetary Theory (MMT) that says economists should stop worrying and learn to love the debt because, when you think about it, the government's deficit is a private sector surplus. This is what MMTers believe.

Joining us to talk about the debt, the rising influence of MMT, and the likely trajectory of an increasingly debt-burdened country is Bob Murphy. He's an economist and author, senior fellow at the Mises Institute, and host of The Bob Murphy Show and The Human Action Podcast.

Sources referenced in this episode:

1. Federal Debt Held by the Public | St. Louis Fed
2. Federal Debt Held by the Public as Percent of Gross Domestic Product | St. Louis Fed
3. Real Gross Domestic Product | St. Louis Fed
4. Federal government current expenditures: Interest payments | St. Louis Fed
5. Federal spending | U.S. Treasury Fiscal Data
6. Just Asking Questions with Ted Nordhaus
7. Just Asking Questions with Kyla Scanlon
8. Reason TV: "Does National Debt Still Matter? America's Gamble"
9. Stephanie Kelton: "The big myth of government deficits" | TED
10. Murphy's original 2011 refutation of MMT
11. Free digital version of Murphy's book, Understanding Money Mechanics
12. The Bob Murphy Show's MMT archive
13. Murphy hosts Reason's Nick Gillespie on The Human Action Podcast

Chapters:

• 00:00 Introduction
• 01:34 What economic story does the debt tell?
• 05:28 How is this much debt politically feasible?
• 09:38 Murphy responds to Jason Furman and Keynesianism
• 14:31 The interest paid on the debt
• 17:41 Analogizing alarmism: debt vs. climate
• 26:03 Simple lesson on Social Security and entitlements
• 32:40 Responding to MMT and Kelton's TED talk
• 57:41 Why do MMTers seem so fashionable?
• 01:00:36 Libertarianism: pessimism vs. optimism
• 01:11:16 Final question

• Producer: John Osterhoudt

Comments

[Uncle Jay]

"How Bad Is the National Debt?"

Think Weimer Republic, circa 1932.

[CE]

Our national debt—measured as federal debt held by the public—is over $27 trillion. That's approaching 100 percent of annual gross domestic product...

All of the debt (now 35.3 trillion dollars) is held by the public. Who do you think is going to pay it back?

And it's way more than 100% of GDP, if you subtract government spending from GDP (the government parasite consumes production, it doesn't create anything).

National debt: 35.3 trillion
GDP: 28.2 trillion (2024)
Government spending: 6.8 trillion (2024)
GDP less government spending: 21.4 trillion

Debt to productive GDP: 35.3/21.4 = 165%

[CE]

And framing it as debt to GDP implies that all of GDP belongs to the government. The real metric to monitor should be debt to federal tax revenues:

35.3 trillion / 4.86 trillion (projected 2024) = 726%

[Zeb]

Here's a (probably naive) question. Why does everyone act like stopping the growth of federal spending is impossible and ridiculous to even suggest? If two or three years ago we had gone back to 2019 levels of spending (2020 should have been an "emergency" aberration, not a new baseline) we'd have tax surpluses and the debt would be declining.

[Stupid Government Tricks]

Because politicians are in control and the last thing bureaucrats want to do is solve problems or shrink their bureaucracies.

[Overt]

This has been tried numerous times- Paul Ryan and Rand Paul have both proposed bills of this type. And some pundit- maybe Jonah Goldberg would always get lefties in a twit when he said things like, “If Clinton was so great, let’s go back to spending as a %of GDP from the Clinton era. As near as I can tell, no one was screaming about how Clinton was an evil scrooge forcing us into an era of austerity.”

In any case, the big reason that doesn’t work is that it still results in “cuts” in two ways.

First, the baseline budgeting process means that everyone “expects” to get a raise each year, which gives senators plausible deniability to go out and insist we are “Cutting” X program when we refuse to give it the standard raise.

Second, much of our budget is non-discretionary. If we say we will keep our budget at X, then we will have to cut military, welfare, etc etc in order to make the increasing payments to Medicare and Social Security.

But most of all, the problem is that most of the american public is unserious about spending. And so they will never electorally punish a guy who raises spending- and will in fact punish people for trying to reign it in. *shrug*

[NJ2AZ]

don't you know: the literal only thing standing between us and prosperity is reverting to the marginal income tax rates (that no one paid) that were in effect post ww2.

[LIBtranslator]

Looters of the Hitlerite persuasion are keen to keep individual income tax levies as high as possible, and thereby abolish income tax of artificial persons NOT liable to being shot or jailed. Straitjacket Laffer said as much in his Trumpanzee commercials, as Chase Oliver shot down the poor lewser's fantasies. Sad.

[Rick James]

Because government programs cannot, under any circumstances be left to ‘wither on the vine’.

Edit: but for a serious answer, it's the deep state. Government apparatchiks measure their power by the size of the budgets (and departments) they control. There is a massive convergence of interest in keeping budgets large and perpetually growing.

[Zeb]

And this is why Yes, Minister is the best and most accurate show about government ever. Success for a civil servant is measured by the size of their budget.

[Yuno Hoo]

Obligatory.

[LIBtranslator]

So, do entrenched looter Kleptocracy politician paychecks have anything to do with enlarging those budgets?

[Fire up the Woodchippers! (5-30 Banana Republic Day)]

It’s totally achievable. Although the democrats must be overthrown to make it a reality. We need to go full Joe McCarthy on them. And any RINOs that get in the way.

Beat them, lock them up, execute them. Whatever it takes. We need our constitutional republic.

We don’t need any democrats.

[LIBtranslator]

51 YEARS AGO the idea of pregnant women having individual rights was absolute thoughtcrime. Merry Jew Wanna was a commie plot in Harry Anslinger books, WAY worse than Satanic Possession, which it also led to! Suddenly the Libertarian Party platform was published and votes began streaming in... Enter Anarcho-communist "libertarianism" and the Jesus Caucus to reverse all that...

[Stupid Government Tricks]

My understanding of the theoretical justification for Magical Money Tree spending is that when an economy is not running at 100% capacity, printing money to take up that slack is harmless.

Even if the idiots who believe that were taking into account factory downtime for maintenance, upgrades, product changes, etc, and people taking vacations, getting sick, and otherwise taking breaks ... it would still be nothing but a rehash of Keynesians ignoring his "timely, temporary, and targeted" strictures for government borrowing in bad times and budget surpluses in good times.

And Keynes was a damned fool for so many other reasons. All he really did was give bureaucrats an excuse for spending money they didn't have.

[Overt]

"when an economy is not running at 100% capacity, printing money to take up that slack is harmless."

No, the MMT people absolutely believe that this is inflationary. But their argument is that they can pay you a bajillion dollars to take trash to the curb, just as long as they turn around and tax you a bajillion dollars (minus the living expenses you deserve, good citizen) they will pull that money out of the system.

This is of course such a "Horses are spherical" oversimplification of the system, that it is impossible to work. First of all, it is nonsense to assume that we could identify all the places we ought to tax to remove money from the system without bankrupting and ruining countless people. Even worse, it is insanity to think that any politician (or bureaucrat if we were foolish enough to outsource it to an agency) would do what is in the "economy's" best interest, rather than playing political favoritism.

[Sarah Palin's Buttplug - Jan 6 = 9/11 (same motive)]

There is no “rising influence” of MMT. Stephanie Kelton has never worked on a winning campaign. But she has been riding post in that two car race for decades.

For the record Dick Cheney was no MMT proponent. He (like Donnie) just didn’t give a fuck about huge deficits.

[Fire up the Woodchippers! (5-30 Banana Republic Day)]

So let’s get rid of all you democrats, and al, the RINOs too.

Why don’t you turn yourself in, and get the ball rolling?

[Quo Usque Tandem]

"...the government's deficit is a private sector surplus. This is what MMTers believe."

"Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government's deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government's activities by itself. The approach of MMT typically reverses theories of governmental austerity."

Thinking back on Reagan's speech [1981], in which he said the national debt was approaching a trillion dollars, or "a stack of $1,000 bills 67 miles high."

[Its_Not_Inevitable]

Yeah, but how high would a stack of 35 Trillion dollar bills be?

[Quo Usque Tandem]

Well I understand he was off by a bit; more like 63 miles, so using my advanced math skills I come up with a 2,205 mile stack of bills. Seems MMT has arrived just in time to dissolve us of any responsibility for profligate borrowing and spending; wish I could do that, but for reasons I'm told it just doesn't work that way as I'd have to be able to print my own money, determine the taxation rate, and establish an interest rate [then it would all be good] to make sure deficits = surpluses.

[Zeb]

Reagan was more cavalier with his $1000 bills than most, and carried them around in his pocket, so they stacked higher.

[JFree]

Govt debt as a separate category of debt is pretty much irrelevant. It is total debt to GDP that matters and that explains economic decisions. It is the first derivative of that – net change in debt / net change in GDP that explains whether debt is an increasing burden or not.

The various subcategories of debt are only useful as a way of understanding who the FIRE sector is preferring to lend money to at any point in time. But that's it.

[Fire up the Woodchippers! (5-30 Banana Republic Day)]

So why do you support massive deficits?

[JFree]

Why do you still beat your wife and kids when you're on meth?

[Fire up the Woodchippers! (5-30 Banana Republic Day)]

You’re confused. You must have been looking in a mirror when you asked that question. Except the wife and kids are part of a drug induced delusion. As no one could possibly ever love you.

[Yuno Hoo]

How Bad Is the National Debt?

Apparently not too bad, given that it can be paid off with a few (magic) coins. 8-(

[Bowerick Wowbagger]

Love me some Bob Murphy. He should be required listening to in any college econ class

[LIBtranslator]

At gunpoint, no doubt...

[LIBtranslator]

Oooo. Stammering Zack and the Jesus Caucus Lizard team up again to shift the narrative away from Trump judges coathangering women to death! One gots to please the Jesus Caucus and keep felony plant leaf and asset forfeiture laws unmolested, right? Look, shiny object! Check out these prophesies! Pay no attention the Christian National Socialist policies behind the platform curtain.

[TJJ2000]

Nobody but determined criminals ever thought MMT was anything but a criminals scam to STEAL from unsuspecting idiots. It's exactly what the BS indoctrination is founded upon. How to get/scam something from nothing.

[Uomo Del Ghiaccio]

It is a tough nut to crack. Modern Monetary Theory is a crackpot theory that should be tossed out to the dustbin of stupid ideas.

We need to stop the bleeding and there are plenty of items where costs including entire departments that could be eliminated and we would be better off without them. Personally, I believe that some sort of an across the board percentage cut is the most viable to begin with, but eventually will require more drastic cuts or eliminations of government programs or agencies.