National Debt

Does National Debt Still Matter? America's Greatest Gamble

Fiscal hawks have been sounding the alarm about rising debt levels for decades, but their nightmare scenario of runaway inflation hasn't come to pass. How do we know if this time is different? 


In 2010, when former White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson (R–Wyo.) were appointed to co-chair President Obama's deficit-reduction commission, the Congressional Budget Office (CBO) offered two projections on the future of American debt. One forecast saw debt ballooning, and the second was much more moderate. Current projections are somewhere in the middle.

And in the 11 years since, America has also made no meaningful structural reforms to deal with the problem. 

Congress has doled out more than $4 trillion in response to the COVID-19 pandemic. The U.S. national debt held by the public is currently almost $22 trillion, or about $67,000 per citizen, surpassing the country's annual GDP for the first time since World War II. 

On the current path, the CBO predicted in March that the debt would grow to 102 percent of GDP by the end of 2021, to 107 percent by 2031, and 202 percent by 2051. It also predicted that by 2051, the federal government will be spending more than a quarter of its annual budget just to pay interest on the principal. But those estimates came before President Joe Biden signed the $1.9 trillion COVID-19 relief bill, which made the long-term budget outlook even worse.

What is the risk to the U.S. economy? Fiscal hawks have been sounding the alarm about rising debt levels for decades, but their nightmare scenario of runaway inflation hasn't come to pass. How do we know if this time is different? 

In 2010, midway through the first term of President Barack Obama and on the heels of the Great Recession, the national debt was skyrocketing. It had exploded under President George W. Bush, who engaged the U.S. in two foreign wars and expanded eldercare entitlements, which are the biggest drivers of U.S. debt. Bush had the full backing of Republicans in Congress. Under his watch, the U.S. also bailed out big banks and entire industries. But it wasn't until a Democratic president championed an $831 billion federal stimulus that Republicans said they had finally seen enough.

The Tea Party rose to prominence, riding a wave of public concern over debt levels that they said would hinder economic progress and stick future generations with the bill. Republicans claimed to be renewing their commitment to fiscal responsibility post-Bush. After Democrats were walloped in the midterm elections, President Obama established the Simpson-Bowles Commission, which concluded that disaster was inevitable unless the federal government cut spending, raised taxes, and reformed entitlements. The commission's recommendations were never adopted. Its critics say that that's a good thing.

"If the Simpson-Bowles had been adopted, we would have been chronically short of demand in the years that followed its adoption," Jason Furman, who chaired the Council of Economic Advisers under President Obama, tells Reason. 

"The unemployment rate would have been higher, growth would have been lower, and when we went into the COVID crisis we would have gone in with a lower inflation rate, lower interest rates, and thus, even less scope to maneuver than we actually had," Furman says.

Furman has co-authored a paper with his Harvard colleague and former Treasury Secretary Lawrence Summers questioning past assumptions about the national debt. He says that the debt hawks of the 2010s were wrong to worry that America's balance sheet endangered the economy. 

As the industrialized world racked up debt through the 2010s, inflation and interest rates stayed low—contrary to the warnings of the doomsayers.  

This situation, Furman and Summers say, implies that the U.S. government has much more leeway to borrow money, spend it on government projects, and grow its way out of the debt than fiscal hawks have led us to believe. Furman argues that the story is much the same regarding the pandemic-era economy. 

"There was nothing about the U.S. debt level going into the COVID crisis that created any constraint on the resources available to fight the crisis," he says. "The United States was able to borrow an enormous amount, [and] not just the United States. Japan, which has a higher debt level, was able to borrow an enormous amount." According to Furman, there is no relationship between a country's debt and its ability to manage the COVID crisis. 

John Cochrane, an economist at Stanford University's Hoover Institution, disagrees. "If you wait until the crisis comes, everything is much much worse," he says.

As a fiscal hawk, Cochrane acknowledges that his doomsaying has been wrong for the past decade, but he says that doesn't mean he's wrong now. 

"I live in California. We live on earthquake faults." Cochrane says. "We haven't had a major earthquake, a magnitude nine, for about a hundred years." It would be foolish to consider someone a doomsayer for preparing for an earthquake in California, he says, despite the fact that major earthquakes aren't a common occurrence.

"That's the nature of the danger that faces us. It's not a slow predictable thing," says Cochrane. "It is the danger of a crisis breaking out. So I'm happy to be wrong for a while, but that doesn't mean that the earthquake fault is not under us and growing bigger as we speak." 

Economist and New York Times columnist Paul Krugman wrote in a December piece titled "Learn to Stop Worrying and Love Debt" that, "It's a completely safe prediction that once Joe Biden is sworn in, we will once again hear lots of righteous Republican ranting about the evils of borrowing."

Krugman is right. Republicans have been complicit in ballooning the debt going back to the Nixon administration. But scoring rhetorical points about GOP hypocrisy doesn't address the question of whether or not America's debt, typically measured as a ratio of GDP, is cause for concern. The U.S. reached these heights only once before—at the end of World War II.

"The U.S. had a hundred percent debt-to-GDP ratio because we borrowed a ton of money to save the world from fascism," Cochrane says. But he argues that today's situation is different because the U.S. stopped spending after World War II. 

"The war was over and the U.S. ran steady primary surpluses, actually. Whereas right now, we're talking about at least three to five percent primary deficits forever. Plus stimulus for crisis. Plus Social Security and Medicare," Cochrane says.

But Furman and Summers say that if the government spends money borrowed at low-interest rates on critical infrastructure, it will more than pay for itself in the long run. 

"If it costs you…zero to borrow and something does more than zero, it's worth doing," says Furman. "It then needs to do a decent amount more than zero such that when you tax it…it pays itself back." Furman claims that the expenditures that do this are limited, but says that the evidence points to the value of investing in children in areas like preschool and child health care. 

Cochrane agrees that government spending on certain projects theoretically can boost growth, but he is skeptical of the government's ability to spend the money wisely. 

"None of the current stimulus payments are going towards things that raise the economy's long-run growth path," says Cochrane.

He claims that most of the money spent on COVID-19 relief won't help the economy's long-range prospects—and he's not sure Biden's $2.25 trillion for proposed infrastructure spending will, either. 

"Our government is not very good right now at investing wisely in things that are good projects," Cochrane says. "Let me point to the California high-speed train for example. It's going to connect Fresno to Bakersfield at about 60 miles an hour at a cost of $80 billion and has not one mile of track has been built yet. That's the kind of infrastructure our government tends to [build]."

Money for high-speed rail was part of the 2009 $831 billion federal stimulus package. Summers, Obama's chief economic adviser at the time, called it a targeted, temporary, and timely boost to the economy that would focus on "shovel-ready" infrastructure projects. But the stimulus package failed to stop civilian unemployment from rising to 10 percent, the construction workforce from contracting by more than 14 percent, and the economy from shedding more than 7 million jobs in Obama's first term.

The Obama administration promised that 90 percent of the jobs supported by the act would be in the private sector. A year after the law's implementation, four out of five positions created were government jobs. Each job the stimulus package created cost taxpayers between $100,000 and $400,000, according to a study by two Dartmouth economists.

Some economists, including Paul Krugman, said that the 2009 stimulus didn't work because it was too small. Today's $4.1 trillion in pandemic-related spending is a test of this theory. It is an unprecedented sum. In current dollars, it is equivalent to what the federal government spent both to land a man on the moon and to build the entire interstate highway system—multiplied by 5. And that doesn't include the Biden administration's proposed $2.25 trillion in infrastructure spending.

Summers recently expressed concern that inflation actually could be a problem after the U.S. spends trillions on fiscal stimulus.

"There's a real possibility that, within the year, we're going to be dealing with the most serious incipient inflation problem that we have faced in the last 40 years," Summers said in an interview with Bloomberg in February. 

Furman believes that more stimulus money was allocated in 2021 than was warranted. He says that he would have preferred to have the payments more spread out over time.

"I think the number could have been even larger if it had been spread out over time," says Furman. "So I don't think it was optimally designed from an economic perspective. I think it creates some risks but I don't think that those risks are huge. I think [that] on balance it's more likely that the higher inflation is good than that the higher inflation is bad."

Furman and Summers' paper also expresses concerns about debt projections beyond 2030 absent Social Security and Medicare reform as baby boomers retire en masse. Simpson and Bowles recognized that the bill on eldercare would eventually be the item to bust the budget. 

"All else equal, addressing entitlements sooner is better than addressing entitlements later," Furman says. "If you want to address it more on benefit reduction, then you probably do want an earlier start, I'm comfortable doing it on the tax side. I understand others probably want to do it on the benefits side. And if I were them, I'd want to get started sooner too."

The libertarian economist Murray Rothbard once wrote that when economists started telling politicians that it was the "government's moral and scientific duty to spend, spend, and spend," they went from being the "grouches at the picnic" to in-house yes-men. 

Furman says that unlike advocates of Modern Monetary Theory, which posits that near-unlimited government money creation and spending are possible without dire consequences, he recognizes that there are limits. But he believes we are using the wrong metric to gauge the magnitude of the problem. 

"The question is where do you want to stabilize the debt," says Furman. "People used to think it should be 30 percent of GDP. Is that what we need to do in order to be safe? I think if you're asking that question without looking at interest rates, then you're in danger of a very incomplete answer."

"Most people acknowledge that there are limits but they envision slow, steady warnings. That you'll see the problem coming and you'll have plenty of time to fix things," says Cochrane. "And I looked through history and I noticed that when things go wrong, they go wrong in a big crisis."

Cochrane says he's worried that debt will be a drag on economic growth, but he's especially concerned that the U.S. could face a scenario similar to the sovereign debt crisis that hit Greece in 2010, which caused its economy to shrink by a quarter, and unemployment to climb to 25 percent. Greece's position was admittedly different, but the country's meltdown shows the social and political consequences of a fiscal crisis. The state seized assets; banks limited ATM withdrawals; there were food lines, anti-austerity protests, and violence; and extremist political parties gained ground.

Cochrane says that if a debt crisis like that of Greece hits the U.S., it would be an unimaginable catastrophe. Greece at least had Germany to bail them out, while there is no one to bail out the U.S.

"Governments that are undergoing a debt crisis grab money everywhere they can. So watch your wallet," Cochrane says. "All those things that you count on coming from the government disappear. All of a sudden taxes go up very sharply…Basically, say goodbye to your wealth."

Yet Cochrane believes it is not too late to avert a potential crisis and that the U.S. can look to other countries as examples to follow. He says that in the 1990s, Sweden "recognized that socialism wasn't working" and reformed its social welfare system. As a result, its economy grew.

"It's straightforward to do as economics. Functioning democracies are able to get together and see problems coming and fix them," Cochrane says. "We have been able to do so in the pastlet us hope that we can do so before it's too late."

Cochrane says that in the meantime, if there's no political will to cut spending and slow down borrowing, Treasury Secretary Janet Yellen should "borrow long" by taking a slightly higher interest rate for a longer-term loan.

"Then in the event of trouble, we don't have to pay more interest on the outstanding debt. And that really diffuses the crisis mechanics," says Cochrane. "Are you going to be so greedy that you're not going to pay one and a half percent interest rates in order to get rid of the possibility of a debt crisis for a generation? It seems like cheap insurance to me."

Is there a point where taking on too much debt is an unacceptable risk? 

"The United States isn't going to default on its debt. We borrow in our own currency. So there's zero default risk," says Furman. "There is definitely inflation risk if you borrow too much and can't pay it off, but it's not like you go from one and a half percent inflation to hyperinflation in the blink of an eye. There's a lot of steps between here and there. I think there is certainly some risk and in the event that that risk materializes we will have to, very quickly, sit down and figure out how to raise taxes or cut spending."

Cochrane has a different perspective. 

"Things always go boom all of a sudden, and so the key to fiscal management is to keep some dry powder around to have some ability to be able to borrow more," Cochrane says. "Imagine if world war breaks out, and we've already borrowed the 100 percent debt-to-GDP ratio that we ended World War II with. Well, once we're at a 100, 150, 200, our ability to meet that next crisis with borrowing is gone and then that next crisis is a catastrophe."

Produced by Zach Weissmueller and Justin Monticello. Graphics by Lex Villena and Isaac Reese. 

Photo credits: Michael Debets/ZUMA Press/Newscom; Dennis Brack/ "Danita Delimont Photography"/Newscom; Chuck Hill/ZUMA Press/Newscom; SHERRI LAROSE/KRT/Newscom; Dennis Brack/Newscom; BRIAN KERSEY/UPI/Newscom; Jeff Malet Photography/Newscom; The White House/Sipa USA/Newscom; Ron Sachs—Pool via CNP/Newscom; Paul Chinn/UPI/Newscom; Morio Taga/Jiji Press Photo/Newscom; Craig Kohlruss/ZUMA Press/Newscom; Hindustan Times/Newscom; Tom Williams/CQ Roll Call/Newscom; KEVIN DIETSCH/UPI/Newscom; Marios Lolos / Xinhua News Agency/Newscom; Michael Debets/ZUMA Press/Newscom;  Marios Lolos / Xinhua News Agency/Newscom; picture alliance / Robert Geiss/Newscom; AA/ABACA/Newscom; Abaca Press/Eklund Robert/Stella Pictures/Ab/Newscom; CNP/AdMedia/Newscom; Julien McRoberts / DanitaDelimont / Danita Delimont Photography/Newscom; Graham Oliver/Newscom;  Paul Chinn/UPI/Newscom; Jorge Nunez/EFE/Newscom; WASHINGTON POOL/SIPA/Newscom; John Gastaldo/ZUMA Press/Newscom; Harry Scull Jr./ZUMAPRESS/Newscom

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  1. If the debt isn’t important, why so much effort to raise taxes?

    1. As I mentioned in another article, taxes are used to limit wealth inequality in society and provide a more equitable distribution of resources.

      1. So government is now Robin Hood?

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        3. The DEBT is not the DEFICIT. And the DEFICIT is not the DEBT. They are separate problems.

          Government BORROWING drives up the debt, not government SPENDING.

          The solution to our debt problem is simple: STOP ISSUING DEBT-BASED MONEY! Begin issuing pure “unbacked” fiat money to fund the deficit, rather than going further into debt. The inflationary impact of unbacked dollars is no worse than the inflationary impact of the same amount of debt-backed dollars. Issuing unbacked dollars will halt the increase in the national debt and its crushing $479 billion in annual interest. Paying off part of the maturing debt each year and rolling over the rest will eventually bring the national debt (and its taxpayer-financed interest payments) down to zero. See .

          1. “…Government BORROWING drives up the debt, not government SPENDING…”

            There is a level of econ-ignoramus which is sometimes hard to believe, but here it is folks!

            1. Please provide details.

              1. Why does the government borrow? Why, to spend of course!

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          2. Interest payments, no matter the amount, are NEVER “crushing” to the Monetarily Sovereign federal govt. In fact, interest payments add STIMULUS dollars to the economy. Paying interest of govt debt (known as BONDS) is no more difficult than processing any other federal payment. To pay interest on debt the Fed simply credits accounts. No tax dollars involved at all. Congress has the ability to authorize any amount of spending on anything. Congress has no fixed pot of money. The federal govt (via the Fed) has 100% ability to prevent too much inflation. Inflations are caused by shortages-typically food/energy. Inflations are never caused by too much “money printing.”

          3. “…bring the national debt (and its taxpayer-financed interest payments) down to zero.”
            Credit all reserve accts, debit all securities accts w/ a single keystroke. DEBT paid in full IMMEDIATELY. Several reasons it will never happen and I’m not going to elaborate. Bottom line-federal debt is a safe storage depository w guaranteed return and the “debt” acts as an inflation buffer as the Fed continually conducts monetary policy.

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        4. government is cancer

      2. The purpose of taxes is to fund the government. I don’t care what side of the spectrum you are on, repurposes taxes as a form of social engineering is an anti-human. It does NOT redistribute wealth, it just pads political pockets.

        Take ten dollars from the rich man, give one dollar to the poor, and four to your crony friends. That’s not justice, that’s not Robin Hood, that’s a parasite.

        1. that’s a parasite.

          Hey now, we in Maryland (and my neighbors to the south in N. VA) resent that. Yes, the counties surrounding DC are some of the wealthiest in the nation but that is only because everyone else just keeps requesting to send their money our way. We only have a total of 4 Senators and 19 Reps between us, so its not like we are using our size and power to seize your tax dollars. What do you want us to do? And remember “just say no” doesn’t work any better for tax dollars then it did for drugs.

        2. Some of my best friends are parasites…

          1. I love ChemJeff Radical Socialist.
            The remora of the comments section.

        3. Parasite is a bad analogy. It’s not a foreign agent that was never warranted. It’s something that has its purspose and useful function, but has grown so large and bloated, and consumes so much valuable space and resources, that it becomes a deadly threat. Government is cancer.

      3. no their not..they exist to sop up the printed money because in their hearts of hearts little Keynsians know this is all BS…their entire “science” is crap and with massive govt debt the central bank can’t raise rates…the whole charade to enrich the elites and well connected with money from thin air goes on with “economists” saying it is good policy.

      4. You might find out you are wrong about the debt and inflation. We are in uncharted waters.

      5. Yes. We need to reallocate resources to people who don’t know how to use them wisely and away from those who do.

    2. To punish the rich for being more successful.

    3. To keep the populace under their thumb.

        1. Money is power. Taking people’s money leaves them powerless.

    4. We know that tax _cuts_ increase revenues to the government. Do tax _increases_ always decrease revenues?

    5. No sane political theorist claims that sovereign debt is not important. The question is whether its importance is less than the need to create jobs, rebuild truly miserable infrastructure, and reduce poverty and racial discrimination. I believe that the importance of debt today is less, I applaud the plan to raise taxes, mostly on the wealthy and to decrease tax shelters. The US economy will be the engine that pulls the world out of its current funk, if these critical improvements are made- not the Chinese or ECB, Interest rates are very low and the chicken little the sky will fall arguments ofthe CATO Institute and other fronts for the wealthy who don’t want to pay their share aren’t convincing. Just look where personal and corporate income taxes were in 1950 – and the economy boomed.

      1. IF the spending actually went to something useful, there may be a good argument for it, but it’s highly unlikely that it will. In fact, much will probably be counter-productive.

  2. Hunter Biden uses the same trick Congress uses on ole Joe! Just put the check book in front of Biden and tell him he’s signing a check or birthday card for one of his grandkids. Works every time!

    1. Kamala puts a new spin on laughing all the way to the bank.

  3. “The Obama administration promised that 90 percent of the jobs supported by the act would be in the private sector. A year after the law’s implementation, four out of five positions created were government jobs. Each job the stimulus package created cost taxpayers between $100,000 and $400,000, according to a study by two Dartmouth economists.”

    And many of the new jobs in the “infrastructure” bill will be Federal overseers and administrators and their staffs.

  4. The debt is not real. Neither is our currency, for that matter, which is sustained only because the government forces the people to deal in it. Taxes exist solely for this reason — to create a forced market for the dollar. Taxes can only be paid in dollars, thus rendering the dollar the preeminent unit of trade. Theoretically, we would not need to pay taxes at all, provided the government was willing (and, it seems to be increasingly willing) to coerce every transaction at the point of a gun — but that kind of governing comes with a price.

    At some point soon our entire economy will simply collapse. Perhaps we can start over again, without a national currency. Let us hope so.

    1. Semi O/T, anyone here hold precious metals? I’ve been looking at some of the online vendors, and they all have a premium around 20-25%. Is that normal?

      1. This premium is not at all normal. In normal times, you’ll pay 5-10% premium, with the premium on gold higher than that on silver. Right now, the premium on silver is way higher than that on gold. All this says is that the demand for gold is higher than usual and the demand for silver is way higher than usual.

      2. No – they are ripping people off.

        Check or – historically they tended to have lower premiums, but I haven’t looked in a while, so that may no longer be the case.

        1. They’re running around the same if it’s shipped to you. Which is kind of the point.

        2. Both are commodities and commodities tend to lose value long term, as Ehrlich found out betting against Simon.
          Help yourself, but our ‘OMG earthquake!’ reserve has more US cash and less gold.

          1. Gold has averaged nearly 10% annual returns since its value stopped being fixed by the US government in 1973. This is as good as the S&P500 with dividends reinvested. Gold has a central place in monetary history and thus more than commodity value. Silver has mainly commodity value and a horrible hedge against economic uncertainty.

    2. You goldbugs are adorable in how you think that concentrating your wealth into a physical object which men with guns can come and take will save you from the coming crisis. While you are filling your closet with gold bars why not spend a few bucks on high quality lube and a nice ball gag for when the People’s Committee For Wealth Equality arrives at your doorstep.

  5. If inflation is defined by a general increase in prices, rather than arbitrary definition of M[n], then we indeed have inflation. Partly due to lockdowns and the delivery markups, but I suspect also due to a massive increase in “helicopter drops”.

    There is a massive commercial building boom in my area. Massive. All these brand new business parks and buildings. Gleaming icons to a booming economy, icons that will never be occupied. Even after the pandemic they will never be fully occupied. So why build them? Were they just leftover projects from before COVID-19? Or is money so easy that it just has to be spent? I suspect the latter, as one can track the boom/bust cycle by commercial building trends.

    Keynes talked about sticky wages, but what happens when people are paid not to work? Couple that with trillions in money falling from the sky, and yes, doubting inflation is the fools gambit.

    1. Well here – commercial real estate is not booming at all. But the basic point is true. There is inflation – now – in asset prices. Equities, residential real estate are booming and are priced as if the economy will grow rapidly forever with free subsidized money available for all borrowers.

      None of that is included in inflation measures. Those beneficiaries never will admit that that is where inflation manifests because they want to pretend that someone else is benefiting from inflation where they themselves are only benefiting from hard work and effort and skills and etc.

      The outcome is not going to be ‘runaway inflation’. The outcome is – bubbles. Asset prices that rise when loans are being subsidized and financial crises when interest rates rise to normal and choke off new loans or lead to defaults/etc of existing. It’s been happening for 25 years here and those who benefit from bubbles believe that this is a completely normal economy where the ‘adjustment’ will be in the future.

  6. I love the earthquake analogy. It’s gonna be a wild ride here when the shit starts. Nothing you’ve experienced to date will compare to the ultra violence that will occur when things go belly up. That is what the far left wants and they know the soft middle class will fold up like a cheap suit. We saw it last year, the test run to see how the puffy weak class would react. Now just sink the economy to the point where you can pass all kinds of laws because the people are terrorized by the horrible thing and they want it gone.

    We are fucked.

    1. Conservatives have been ranting about debt (when not increasing the debt every chance they get) and about all of this damned progress (and reason, inclusiveness, science, education, modernity, and tolerance) for so long as any of us has been alive.

      Their arguments were never persuasive. That is why they lost the culture war and have become disaffected, even desperate. Today, their complaints are merely going-through-the-motions whines.

      1. When your head is on a pike, I’ll make sure to spit on it.

          1. I thought the same thing when I read Geiger comment! I just saw the clip again on YouTube yesterday.

      2. Conservatives don’t rant about the debt. Libertarians do. Conservatives only rant about taxes while begging for the spending to go up. (Remember kids, Laffer Curve means we can cut taxes AND increase spending!)

        The libertarians were right. Our debt payment keeps going up. But actual services keeps diminishing, which inflation keeps eroding our savings. And we get recessions like clockwork. But all you liberals and proggies blame it on the lack of taxes. Stupid.

        Have we totally collapsed? No. You’re arguing that your side is correct because we haven’t collapsed? Really?

      3. Democrats can’t do basic math.

        Republicans only like to pretend they can when a democrat is in office.

        Pretty much the same shit show regardless.

    2. Seeing as all the big boys are pouring their money into the physical and the tangible right now, I’m anticipating that the earthquake is coming sooner than later.
      Gates and Zuckerberg didn’t just decide they want to be farmers and then got a little too carried away with the idea.

  7. From Investopedia:

    Modern Monetary Theory (MMT) is a heterodox macroeconomic framework that says monetarily sovereign countries like the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a fiat currency they fully control, are not operationally constrained by revenues when it comes to federal government spending.

    Put simply, such governments do not rely on taxes or borrowing for spending since they can print as much as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of rising national debt.

    MMT challenges conventional beliefs about the way the government interacts with the economy, the nature of money, the use of taxes, and the significance of budget deficits. These beliefs, critics say, are a hangover from the gold standard era and are no longer accurate, useful, or necessary.

    MMT is used in policy debates to argue for such progressive legislation as universal healthcare and other public programs for which governments claim to not have enough money to fund.

    1. MMT is Stephanie Kelton’s bullshit.

      It will work until it doesn’t, then fail spectacularly.

      Like jumping off the Empire State Bldg, and as you pass the 50th floor, saying “So far, so good…seems to be working.”

    2. MMT challenges conventional beliefs about what money actually is. Most people – when asked ‘what is money’ – respond with an answer that indicates they really don’t know. Which indicates that the conventional beliefs NEED challenging because money is not rocket science or something esoteric.

      Whether MMT is the right answer to that challenge – well – need to actually wait until there is a challenge to those beliefs

  8. There is no spoon.

  9. The central idea of MMT is that governments with a fiat currency system under their control can and should print (or create with a few keystrokes in today’s digital age) as much money as they need to spend because they cannot go broke or be insolvent unless a political decision to do so is taken.

    Some say such spending would be fiscally irresponsible as the debt would balloon and inflation would skyrocket. But according to MMT, large government debt isn’t the precursor to collapse we have been led to believe it is, countries like the U.S. can sustain much greater deficits without cause for concern, and a small deficit or surplus can be extremely harmful and cause a recession since deficit spending is what builds people’s savings.

    MMT theorists explain that debt is simply money the government put into the economy and didn’t tax back. They also argue that comparing a government’s budgets to that of an average household is a mistake.

    While supporters of the theory acknowledge that inflation is theoretically a possible outcome from such spending, they say it is highly unlikely and can be fought with policy decisions in the future if required. They often cite the example of Japan, which has much higher public debt than the U.S.

    1. But Japan’s debt is unique as it is mostly held by its plebs, who treat government bonds as their savings plans.
      Nobody else is in the same situation as Japan. It’s incomparable.

      1. Also, Japanese economic growth has hovered near zero for 30 years. Hardly a model worth emulating.

        1. We probably don’t have a choice… If we’re lucky.

      2. Everyone who hasn’t repudiated their debt is in the same boat as Japan. The debt load may constrain growth to a different degree but the process is the same. Once they repudiate, then its exactly like German, Zimbabwe, Brazil, etc – where the local currency ceases to be a money.

        And so far, virtually everyone who has repudiated their debt has only repudiated it when the debt is virtually 100% foreign owned.

    2. Japan also has one hundred year bonds. A bunch of that debt just wasn’t come due yet.

    3. MMT as a descriptive theory is very compelling and, I’d say, beats the Austrian goldbugs hands down. But the prescriptions of its progressive exponents are lousy. They’re still pathologically obsessed with the Keynesian ideal of full employment.

  10. According to MMT, the only limit the government has when it comes to spending is the availability of real resources, like workers, construction supplies, etc. When government spending is too great with respect to the resources available, inflation can surge if decision-makers are not careful.

    Taxes create an ongoing demand for currency and are a tool to take money out of an economy that is getting overheated, says MMT. This goes against the conventional idea that taxes are primarily meant to provide the government with money to spend to build infrastructure, fund social welfare programs, etc.

    1. I’m not buying any of this; seems like a lot of smoke and mirrors; a hucksters shell game.

      1. AFAIK, MMT is not a valid theory in economics, it is a description of the rare occasion when a defacto reserve currency can fuck up the world economy and get away with it.
        Until it can’t.

        1. Exactly this. It works until the world refuses to put up with the bullshit.

        2. You are wrong as usual. MMT is not mainstream but it is based on a theory of money called chartalism. Basically that money is not a spontaneous creation based on either barter or debt that government then takes over. Rather, that money is what the state creates for its own functions that need money – that is then adopted more widely for those who accept that government as the sovereign entity.

          In fact, chartalism has a far stronger basis in history than the spontaneous super-barter nonsense which is even today the main ‘mainstream’ theory of money. Though I personally believe that that history is conflating govt coopting debt-based money with govt creating that form of money from scratch.

        3. It’s a rationale present to politicians as an excuse to spend even more. To hell with the consequences.

  11. This is the Biden administration atrocity of the day:

    “We are working with G-20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom”

    —-Janet Yellen

    Fuck you, Janet Yellen, you socialist piece of shit.

    1. A few years ago some Republican State lawmakers [MI] proposed legislation that would stipulate that any State regulation could not exceed an existing applicable Federal regulation; in this sense Federal regs would operate as a “ceiling.”

      This was opposed by Democrats who maintained that any Federal regulation should operate as a “floor,” being a bare minimum upon which they could pass State regulations without limitation.


      1. We can’t lower our taxes unless France and Germany lower theirs–because Biden wants to raise our taxes, he wants to give away our ability to lower them?

        In addition to being anti-capitalist AF, it’s practically treasonous. The Biden administration wants to make the United States less competitive on the world market to pay for his spending.

        How much you want to bet the G-20 countries we compete with think that’s a great idea!

        1. “Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids,” Ms. Yellen said. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”

          Following by comments prioritizing “combatting climate change” and “global poverty.”

          Makes sense given the love affair with MMT; you can tax and spend all you want, it just doesn’t matter because all money emanates from and belongs to the government anyway. They just don’t want anybody else out there giving anyone a break on the tax side. There is no ice man to cometh; hallelujah, money does grow on trees.

          1. [B]ecause all money emanates from and belongs to the government anyway.

            And, by extension, all the people too.

    2. “The left wants the same thing, everywhere, and in the same order.” – Douglas Murray.

    3. So corporate tax rates go up to this minimum. What happens then? Corporations pass the costs along to consumers. Just like they do with the costs to comply with every other piece of legislation and regulation.

      1. Of course, what else would any sane person expect them to do?

    4. Piece of shit would be an upgrade for that piece of shit.

    5. A cartel of governments for controlling prices at the expense of the peoples of the world.


  12. We’re not in too much trouble, as long as we remain the international currency of choice. That may not last forever.

    1. I’d say we have — maybe — another ten or twenty years.

  13. The stimulus will cut child poverty in half, and you’re worried about debt?

    1. We’ll call it the King Solomon Stimulus policy

  14. Yes,
    Toilet paper prices to rise: Maker of Cottonelle, Scott brands plans to increase prices
    First came the toilet paper shortages.

    Now come the price increases.

    The maker of the Cottonelle, Scott and Viva brands announced Wednesday that it will hike prices on “a majority of its North America consumer products business,” including toilet paper and baby care items.

    Kimberly-Clark Corporation blamed rising commodity costs for the increases.
    “The percentage increases are in the mid-to-high single digits,” the company said in a news release. “Nearly all of the increases will be effective in late June.”

    And with the trillions in funny money sent out, it is going to get BRUTAL.

    1. Anyone who claims there is little to no inflation clearly doesn’t do the grocery shipping…the last year it has been quite noticeable, and I think we are only seeing the tip of the iceberg at present.

      1. Some prices are shocking.

    2. Well eventually dollar bills will be worth less than toilet paper…..and…hope they’ll be flushable.

      1. UF,
        You may have noticed that since a year ago the quality of toilet paper has decreased

  15. *Laughs in money printer sounds*

  16. The debt doesn’t matter until the house of cards falls down. Then the only question is who gets the blame. Currently, the US needs 28 trillion dollars just to be broke.

  17. I’m not an economist, but I have a feeling our inflation now isn’t as bad as it should be because we’re the largest economy and the dollar is the world’s reserve currency. When we lose either both inflation will skyrocket. T don’t it will get to the point that we have $1,000,000 bills, but we’ll be just a second-rate economy with a debt exceeding 200% of GNP.

    1. Don’t worry, the elite will get bailed out by their SDRs and front-running the whole thing while the proletariat gets crushed. You can sleep soundly tonight.

  18. Cochrane hinted at this but didn’t say it directly. Just because there’s no inflation, high interest rates, or falling dollar doesn’t mean you don’t have to worry about debt. All it means if the people before didn’t borrow up to the limit where there is a problem. It is a problem or we’ve discovered a perpetual motion machine. The U.S. should have a law against borrowing for expenses. It’s really unfair that a bunch of politicians with no scruples can use up a larger share of the countries’ borrowing capability just because they are willing to do so.

  19. John Deere 4010 in 1963 factory new price $5500
    Today 58-year old worn out 4010 prices $12,000

    Don’t tell me there isn’t WAY TOO much inflation on the USD.
    Anyone who was rich and stored retirement is flat broke today.

    THAT is the Gov crockery method of STEALING all your labors – massive inflation, 50% taxes… This is why people have to work so hard just to make a living… It has nothing to do with businesses that have 100,000 employee’s spitting out 1,000,000 devices per year and making $1 profit per device which to the idiotic mind *seems* excessive but is actually nothing in the scope of the size of the outfit.

    1. Or to fill-in for the really stupid.. If one corporation CEO had the governments budget on paid accounts that CEO would be worth $22,110,000,000,000. Even on a 10-year span that’s $2T profit PER YEAR! Greedy corp? My *ss. It’s greedy GOV killing this country in more ways than one.

  20. Sooner rather than later on entitlement reform? He must be kidding. The “sooner” on that was like 30 years ago. We’ve known for a long time that these programs were going to run out of money and I don’t think the predictions on when have changed all that much. As to “later”, you might as well say “never” for all the political will there is to do this. They will keep kicking the can down the road until it’s a crisis. Kind of a microcosm of what will happen to the overall debt issue discussed in the piece. As many have said above, it won’t be a problem until it is, and at that point it will be a completely unmanageable problem. Then we’ll have to start over from scratch. Glad I won’t be here to see it, though at the rate we’re accelerating, I might be.

    1. We blame the politicians, but its the voters that keep electing them.

  21. Government spending does not stimulate the economy, it distorts it by sending bad information to markets. Subsidies support politically-favored businesses that should not exist, at the expense of the destruction of businesses that would have otherwise been created and which would have survived or grown.

    1. If govt spending was an investment we would not be running deficits..period end of story Furman. These guys love central planning, its in their blood from the old Soviet Days..they just think if the “smart” people are in charge they can prove socialism works….

      1. The federal government has to run deficits unless you want the economy grinding to a deflationary halt because there isn’t enough currency to keep up with the market’s wealth creation to facilitate smooth and stable trade. Too high and you have inflation, which is bad; people overspend, savings deplete, and private debt accumulates. Too low and you have deflation, which is bad; people oversave, consumption stagnates, businesses fold, and existing debts increase in value. The distortion runs both ways. State and local governments, on the other hand, should never run deficits because they aren’t sovereign currency issuers.

        1. And underneath all that hoopla BS – Items still remain the EXACT same price; whatever someone else will pay for it. UNLESS of course what they use to ‘pay’ for it is STOLEN by Gov-Gun point.

        2. Are you really that stupid? Money reflects prices and signals consumption versus savings…a stable money supply allows market forces (in the end consumers) to determine time horizons of spending which signals through interest rates more or less innovation and have a keynsian view of the world and it honestly is wrong. A few “wise” people don’t know what the interest rates should be or even what money is or how much of it should exist..the market does

  22. Don’t worry, some people will get fabulously rich, and who the hell cares about anybody else?

    1. But all out grandkids will be millionaires! I remember a job I aspired to about 50 years ago, that paid $10K a year. That job now pays over $100K. Our grandkids will see entry level folks making $500K and low level supervisors getting $1mm. And all that without any Zimbabwe-type runaway inflation.

  23. this is a libertarian site and yet no libertarian/austrian economists are cited? Really? Inflation…we have been very lucky to offshore much of the impact of printed money/debt albeit with the result of deindustrializing America and through debt. But inflation has been hitting for years…look at home prices, look at the stock market, look at healthcare and education costs and now food. Furman is a moron…aggregate demand is bullshit. Wow a factory not running at 3 shifts..must be a demand issue…what crap.

    Bring in Bob Murphy, hell Tom Woods understands economics better that Furman and the rest..oh their Catholic..I get it..not “smart enough” huh?

    1. Oh this is no libertarian site.

    2. Austrian economists have a horrible track record when it comes to predicting inflation.

      1. 1960s and 70’s?

  24. Dick Cheney once said deficits don’t matter. Biden administration taking that to heart.
    Deficits don’t matter, neither does heavy cigarette smoking, obesity or reckless driving until they do matter. Then it is too late.

  25. no their not..they exist to sop up the printed money because in their hearts of hearts little Keynsians know this is all BS…their entire “science” is crap and with massive govt debt the central bank can’t raise rates

  26. But all out grandkids will be millionaires 100k cara handal

  27. Imagine when the interest rate goes up by even one percent…

    When people found they can vote themselves free stuff, it was all over. You can’t have a small amount paying taxes and a large amount voting expecting to be paid.

  28. The national debt is a problem because of how new money is issued–usuriously. Principal is created. Interest is not. There is more debt than money, with the result that the banking system gradually vacuums up the nation’s wealth. The federal government will not default on its debt, despite the currency collapse that Austrian apocalypticists have been claiming for decades is immanent. Taxation does not “fund” federal programs. Its dual purposes on that level of government is to remove money from circulation, effectively destroying it, so new spending can enter according to political design, thereby curbing inflation while allowing the federal government to alter the wealth distribution.

    1. Hold on there Bernanke. You are correct the govt never pays back the principal but only rolls it over. Historically the govt had to go to the capital markets where the argument was made it was competing for private sector savings and govt has a horrible record in terms of ROI and eventually if the govt borrowed too much they had to increase return on the bonds eventually limiting the spending due to the interest you have to pay. Ok that’s pretty obvious. But now we are in never never land..the Fed is just rapidly expanding the money supply and giving it to the Fed (albeit at a percent discount-interest payments) but that money flows into nonproductive activities and runs out of “steam.” It also distorts savings levels which confuses consumers who will go further into debt…it becomes a debt spiral down while dealing with inflation…it also destroys basic integity, honesty, and thrift. It’s how republics have fallen time and again…

  29. Cochrane makes a mistake suggesting we could have a debt crisis like Greece. If we have a debt crisis – it won’t be anything like Greece – from an operational standpoint. The Euro is a flawed currency system. Greece was “exporting” their euros to buy goods and services from the rest of the EU – and they obviously can’t print any more. Germany was more than happy to sell Greece lots of goods and services – but had to bail them out because Greece’s economy was never going to make up the difference. Our economy is likely to remain one of the largest and most dynamic for a long time, so our debt crisis, when (if) it happens, will probably produce painful inflation like the early 1980’s – but not hyperinflation.

  30. Not sure why this is still a question.

    Of course it still matters, when a Republican is president.

    As soon as a Democrat gets in there, it not only doesn’t matter, but it’s good, it’s Keynes all the way, baby, put the peddle to the metal and roll, no stop signs, no speed limits, tax and spend baby!

  31. Retrieved from

    [The Clinton administration] had budget surpluses for fiscal years 1998–2001, the only such years from 1970 to 2018. Clinton’s final four budgets were balanced budgets with surpluses, beginning with the 1997 budget. The ratio of debt held by the public to GDP, a primary measure of U.S. federal debt, fell from 47.8% in 1993 to 33.6% by 2000.

    Just sayin’…

  32. Unfortunately, at the behest of voters with HUGE “punishment boners”, success must ALWAYS be punished! Successful (rich) people in the USA must be PUNISHED by high taxes, especially by “Team D”, and successful un-American foreign nations must be PUNISHED by taxing (tariffing) you and me, just to indirectly punish success overseas! (Thanks to “Team R”, which was pro-free- , ,trade before Der TrumpfenFuhrer, fucked it all up, with His YUUGE trade-war punishment boner).

  33. Reason still supports the Biden administration.

  34. ROFLMAO, look at these professional fake libertarians of Reason. Now that they can no longer figure out any more ways to blame all the spending on republicans and maintain even a tiny shred of credibility, they’re all like “hey, maybe Krugman is right after all!”

  35. “if the government spends money borrowed at low-interest rates on critical infrastructure”

    HA HA HA HA HA HA (breathe) HA HA HA HA HA

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