With the U.S. debt ceiling back in the news, we’ll revisit this topic, together with the overall level of U.S. government debt ($31 trillion) and the deficit spending that increases the debt total.
Among the specific questions we may discuss are:
- What is it, and how does it work?
- If increasing the debt ceiling as it is approached is as pro forma as Democrats claim, why do we even have one? What are the downsides to eliminating it?
- How should we think about the amount of debt incurred (or guaranteed) by the federal government?
- What’s the “right” level of debt? A common comparative metric is the debt-to-GDP ratio.
- At an abstract level, which activities should be debt-financed, and which should be pay-as-you-go?
- How should debt-like obligations, like pensions (or, in the case of the U.S. federal accounts, the bigger items like Social Security and Medicare), be factored into our maximum debt calculus? Here’s an opinion piece on the subject–whether you agree with his views or not, his basic math is (I believe) correct.
- How should we think about federal budget deficits?
- Do the rules for calculating the fiscal impacts of bills make sense? [See the opinion link to The Hill.)
Does Any of This Matter? (MMT)
There’s a school of thought out there that government debt doesn’t matter, since the government (or Fed) can print money. So it’s OK to run deficits and borrow as long as inflation is under control. This may be a bit esoteric for some, but Modern Monetary Theory generally comes up (at least in recent years) whenever someone expresses concern about our level of debt, so it’s worth understanding the basics. Suffice it to say, there seem to be a lot more MMT skeptics than proponents.