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Climate change is bad but the federal debt is good. It allows the private sector to be net savers and creates overall stability. It’s also clearly sustainable,

Climate change is bad but the federal debt is good. It allows the private sector to be net savers and creates overall stability. It’s also clearly sustainable, hundreds of years and counting.

throwaway894345 6y ago
Presumably there is some threshold at which debt (or the rate at which we acquire it, or one of the aforementioned adjusted for population) is a bad thing and unsustainable, right? This is a genuine question—macroeconomics is counterintuitive to me.
- wz1000 6y ago
  It is bad when it causes excessive inflation. The "debt" in itself can never be unsustainable, since it is denominated in USD, which is a floating fiat currency that the US government controls. The US government is the source of all dollars, so it can never 'run out of dollars'. However, printing too many dollars can lead to inflation. So the deficit could be called unsustainable if it causes unwanted inflation.
  - eru 6y ago
    That's not the only possibility. You forgot taxes. High government spending means high taxes now, or via debt, high taxes in the future. In general, when the government consumes a lot, the private sector can consume less of the national product.
    - wz1000 6y ago
      Debt does not (necessarily) mean high taxes in the future. Deficit is Government spending - Tax collected. High deficits might lead to inflation. One way to control inflation would be to increase taxes(draining money out of the economy) > In general, when the government consumes a lot, the private sector can consume less of the national product. This is not exactly true. When there is still "slack" in the economy(it is not at full employment, the private sector isn't investing for other reasons etc.), government spending tends to have low inflationary pressure. It is only when the economy is operating at peak productive capacity that government consumption crowds out private sector consumption.
      - eru 6y ago
        > Debt does not (necessarily) mean high taxes in the future. You are right, that's why I called it another possibility. To list them all explicitly. Higher debt now means that the future either has default, higher (than anticipated) inflation or higher taxes. (A steady inflation doesn't do anything to debts: at the time the debt is incurred, any anticipated inflation shows up in the nominal interest rate. Similarly, getting a reputation for defaulting increases your nominal interest rate. A reputation for high taxes doesn't do anything to the interest rate directly.) Responsible governments try to avoid default and ever increasing inflation. That leaves taxes. Or taking on less debt in the first place. About slack: Modern central banks target inflation. If there's slack like you describe, a competent central bank will inject more money until inflation is at the target. Central banks wire their profits to the treasury. That includes the seigniorage income they make from propping up inflation back to the target. That's just bog standard monetary policy. And doesn't crowd out private sector investment and consumption and is perfectly capable of picking up any slack. (That's not to say the fiscal side of government doesn't have any effects at all. But that's more on the supply side.)
- tempestn 6y ago
  ISTM just looking at the federal debt as a single number is a bit misleading. Any treasury debut held by the Federal Reserve (in US terms, or similar central banks of other countries) is effectively interest-free, so it is certainly sustainable. The only downside there is the potential for inflation if it's done too much. Debt help by citizens of the country is also somewhat neutral in terms of sustainability. The government needs to pay interest on it, but the money ultimately goes into the economy, so that might also be sustainable in larger amounts than might be intuitive. Foreign-held debt is another matter, and I'm not enough of an expert to speak on the ramifications there. But I do think in general it's important to recognize that national governments which control their own monetary policy are a very different beast than a household or a business, and so their debt liabilities can't necessarily be thought of in the same way.
  - eru 6y ago
    Foreign held debt is not much of a problem in principle, if the interest is lower than what the country earns from owning foreign assets. But government debt is a problem even if the government doesn't go bankrupt: You are right that a government that can print its own money can hardly go bankrupt financially. But it's perhaps not ideal for the government to consume ever increasing portions of what the nation produces? Forget about money and finance for a second: given the same material resources the private sector is usually more efficient at satisfying human wants.
    - Ma8ee 6y ago
      > given the same material resources the private sector is usually more efficient at satisfying human wants. I think this is a very dangerous simplification. There are certainly areas where private sector does a much better job than the public sector. But there are also areas where the public sector in general is superior. Examples are things like healthcare, infrastructure and education.
      - JackFr 6y ago
        It’s not obvious that the public sector does a better job in healthcare, infrastructure or education. Rather we as a society feel that those things which should be available to all regardless of ones circumstances.
- solresol 6y ago
  Probably, but it will depend on the interest rate. The lower the interest rate, the higher the safe level of debt. Right now federal bonds have a negative interest rate, so perhaps there is no limit to the amount of debt, and in fact that there might be a minimum safe lower bound. Or maybe not; we don't have much experience in dealing with this sort of situation since it was seen to be impossible. Putting that aside, the UK had debt around 200% of GDP after the Napoleonic Wars, and eventually paid most of it down. So the "bad & unsustainable level" appears to be well above that.
  - MLR 6y ago
    That was in the midst of the Industrial Revolution and during a time when the UK also had direct and indirect control of exploitable colonies, I don't think the debt to GDP figures of the time are particularly relevant to modern nation states. Japan has avoided financial collapse with a giant debt to GDP ratio for years now, I think the advent of QE and owning your own debt via central banks has made the whole thing seem a bit silly.
  - mistermann 6y ago
    > The lower the interest rate, the higher the safe level of debt. Provided the interest rates don't rise before the debt is paid off that is. Serviceable might be a better word.
- neffy 6y ago
  Hypothetically - actually not so much - this was one of the issues in 2008. If the financial system creates such quantities of debt, that the regular capital and interest repayments exceed the available money supply, that would be a hard threshold. This is quite a large number if you calculate, even with high interest rates, so highly unlike in practice. Plus bank lending has a side effect of money creation, which stops it happening within the banking system. However government debt and company bonds are non-bank debt, and securitised loans also don't have the money creation property, so one of the issues in 2008 can be presumed to be that the expansion of the debt supply relative to the money supply probably did become an issue in some countries.
creddit 6y ago
Are you sure there have never been issues with countries issuing debt? I can think of many off the top of my head.
- atq2119 6y ago
  The question is: can you think of any that involved debt nominated in the country's own currency? All examples I've ever read or heard of involved foreign currency debt, or to be more precise, debt in a currency that the country in question didn't control (e.g. developing countries with USD-denominated debt, Euro-zone countries, historical cases with debt denominated in gold, etc.). That's an important qualitative difference.
  - eru 6y ago
    See eg https://en.wikipedia.org/wiki/History_of_the_British_national_debt#World_War_I https://en.wikipedia.org/wiki/History_of_the_British_nationa... > By the mid-1920s, interest on [British] government debt was absorbing 44% of all government expenditure, [...] That definitely sounds like an issue. Without the debt, they presumably could have cut taxes in about half. (And gold standard or not doesn't make too much of a difference, if you have a firm commitment to keep inflation in check and not to default on your debt either.)
    - khafra 6y ago
      > > By the mid-1920s, interest on [British] government debt was absorbing 44% of all government expenditure, [...] That definitely sounds like an issue. Without the debt, they presumably could have cut taxes in about half. That's not an issue if, by taking on the debt, the government allowed the economy to grow sufficiently faster. The conservative analogy to a household budget doesn't make sense. Analogizing to a startup where you're best off taking on debt for more capital, to increase growth, also don't make sense. But it's an open question, which of these makes the least sense.
      - eru 6y ago
beambot 6y ago
According to Wikipedia, the Federal Reserve was established in 1913 -- 106 years ago. It's a relative infant as far as societal structures go. https://en.wikipedia.org/wiki/Federal_Reserve https://en.wikipedia.org/wiki/Federal_Reserve
- Danieru 6y ago
  Yes, you are confusing the federal debt with the federal reserve. These are two wholy seperate things. The US Federal debt has been continuous since soon after the revolutionary war with only brief periods of net savings.
  - JackFr 6y ago
    In fact the compromise that led to the location of Washington DC, was one factor that led to New York being the major money center of the United States. Hamilton (of New York) wanted the new federal government to assume the unpaid revolutionary war debt of the States of which New York had quite a bit. Virginia had responsibly paid off all of its revolutionary war debt, and felt it ought not be saddled with other states debt, so as a trade off the new Federal district was moved down to Virginia. When the state debt was federalized, much of it was held in NY which became the place to buy and sell it. Another amusing story about US sovereign debt is the Louisiana purchase. As the story goes Napoleon sold Louisiana to the United States to raise money to finance his wars. The US didn’t have cash on hand to pay, so they floated the Louisiana 3’s which were bonds that paid 3% to raise the money. The agent for the bond sale was Barings, and they were sold on the London and Amsterdam markets. So it was largely the British investing class who were literally financing Napoleon.
    - Danieru 6y ago
      Oh those are interesting stories! Thank you for sharing. I would love to read more about such financial oddities of history, maybe a blog post?

Climate change is bad but the federal debt is good. It allows the private sector to be net savers and creates overall stability. It’s also clearly sustainable, hundreds of years and counting.

throwaway894345 6y ago

Presumably there is some threshold at which debt (or the rate at which we acquire it, or one of the aforementioned adjusted for population) is a bad thing and unsustainable, right? This is a genuine question—macroeconomics is counterintuitive to me.

wz1000 6y ago
It is bad when it causes excessive inflation. The "debt" in itself can never be unsustainable, since it is denominated in USD, which is a floating fiat currency that the US government controls. The US government is the source of all dollars, so it can never 'run out of dollars'. However, printing too many dollars can lead to inflation. So the deficit could be called unsustainable if it causes unwanted inflation.
- eru 6y ago
  That's not the only possibility. You forgot taxes. High government spending means high taxes now, or via debt, high taxes in the future. In general, when the government consumes a lot, the private sector can consume less of the national product.
  - wz1000 6y ago
    Debt does not (necessarily) mean high taxes in the future. Deficit is Government spending - Tax collected. High deficits might lead to inflation. One way to control inflation would be to increase taxes(draining money out of the economy) > In general, when the government consumes a lot, the private sector can consume less of the national product. This is not exactly true. When there is still "slack" in the economy(it is not at full employment, the private sector isn't investing for other reasons etc.), government spending tends to have low inflationary pressure. It is only when the economy is operating at peak productive capacity that government consumption crowds out private sector consumption.
    - eru 6y ago
      > Debt does not (necessarily) mean high taxes in the future. You are right, that's why I called it another possibility. To list them all explicitly. Higher debt now means that the future either has default, higher (than anticipated) inflation or higher taxes. (A steady inflation doesn't do anything to debts: at the time the debt is incurred, any anticipated inflation shows up in the nominal interest rate. Similarly, getting a reputation for defaulting increases your nominal interest rate. A reputation for high taxes doesn't do anything to the interest rate directly.) Responsible governments try to avoid default and ever increasing inflation. That leaves taxes. Or taking on less debt in the first place. About slack: Modern central banks target inflation. If there's slack like you describe, a competent central bank will inject more money until inflation is at the target. Central banks wire their profits to the treasury. That includes the seigniorage income they make from propping up inflation back to the target. That's just bog standard monetary policy. And doesn't crowd out private sector investment and consumption and is perfectly capable of picking up any slack. (That's not to say the fiscal side of government doesn't have any effects at all. But that's more on the supply side.)
tempestn 6y ago
ISTM just looking at the federal debt as a single number is a bit misleading. Any treasury debut held by the Federal Reserve (in US terms, or similar central banks of other countries) is effectively interest-free, so it is certainly sustainable. The only downside there is the potential for inflation if it's done too much. Debt help by citizens of the country is also somewhat neutral in terms of sustainability. The government needs to pay interest on it, but the money ultimately goes into the economy, so that might also be sustainable in larger amounts than might be intuitive. Foreign-held debt is another matter, and I'm not enough of an expert to speak on the ramifications there. But I do think in general it's important to recognize that national governments which control their own monetary policy are a very different beast than a household or a business, and so their debt liabilities can't necessarily be thought of in the same way.
- eru 6y ago
  Foreign held debt is not much of a problem in principle, if the interest is lower than what the country earns from owning foreign assets. But government debt is a problem even if the government doesn't go bankrupt: You are right that a government that can print its own money can hardly go bankrupt financially. But it's perhaps not ideal for the government to consume ever increasing portions of what the nation produces? Forget about money and finance for a second: given the same material resources the private sector is usually more efficient at satisfying human wants.
  - Ma8ee 6y ago
    > given the same material resources the private sector is usually more efficient at satisfying human wants. I think this is a very dangerous simplification. There are certainly areas where private sector does a much better job than the public sector. But there are also areas where the public sector in general is superior. Examples are things like healthcare, infrastructure and education.
    - JackFr 6y ago
      It’s not obvious that the public sector does a better job in healthcare, infrastructure or education. Rather we as a society feel that those things which should be available to all regardless of ones circumstances.
solresol 6y ago
Probably, but it will depend on the interest rate. The lower the interest rate, the higher the safe level of debt. Right now federal bonds have a negative interest rate, so perhaps there is no limit to the amount of debt, and in fact that there might be a minimum safe lower bound. Or maybe not; we don't have much experience in dealing with this sort of situation since it was seen to be impossible. Putting that aside, the UK had debt around 200% of GDP after the Napoleonic Wars, and eventually paid most of it down. So the "bad & unsustainable level" appears to be well above that.
- MLR 6y ago
  That was in the midst of the Industrial Revolution and during a time when the UK also had direct and indirect control of exploitable colonies, I don't think the debt to GDP figures of the time are particularly relevant to modern nation states. Japan has avoided financial collapse with a giant debt to GDP ratio for years now, I think the advent of QE and owning your own debt via central banks has made the whole thing seem a bit silly.
- mistermann 6y ago
  > The lower the interest rate, the higher the safe level of debt. Provided the interest rates don't rise before the debt is paid off that is. Serviceable might be a better word.
neffy 6y ago
Hypothetically - actually not so much - this was one of the issues in 2008. If the financial system creates such quantities of debt, that the regular capital and interest repayments exceed the available money supply, that would be a hard threshold. This is quite a large number if you calculate, even with high interest rates, so highly unlike in practice. Plus bank lending has a side effect of money creation, which stops it happening within the banking system. However government debt and company bonds are non-bank debt, and securitised loans also don't have the money creation property, so one of the issues in 2008 can be presumed to be that the expansion of the debt supply relative to the money supply probably did become an issue in some countries.

creddit 6y ago

Are you sure there have never been issues with countries issuing debt? I can think of many off the top of my head.

atq2119 6y ago
The question is: can you think of any that involved debt nominated in the country's own currency? All examples I've ever read or heard of involved foreign currency debt, or to be more precise, debt in a currency that the country in question didn't control (e.g. developing countries with USD-denominated debt, Euro-zone countries, historical cases with debt denominated in gold, etc.). That's an important qualitative difference.
- eru 6y ago
  See eg https://en.wikipedia.org/wiki/History_of_the_British_national_debt#World_War_I https://en.wikipedia.org/wiki/History_of_the_British_nationa... > By the mid-1920s, interest on [British] government debt was absorbing 44% of all government expenditure, [...] That definitely sounds like an issue. Without the debt, they presumably could have cut taxes in about half. (And gold standard or not doesn't make too much of a difference, if you have a firm commitment to keep inflation in check and not to default on your debt either.)
  - khafra 6y ago
    > > By the mid-1920s, interest on [British] government debt was absorbing 44% of all government expenditure, [...] That definitely sounds like an issue. Without the debt, they presumably could have cut taxes in about half. That's not an issue if, by taking on the debt, the government allowed the economy to grow sufficiently faster. The conservative analogy to a household budget doesn't make sense. Analogizing to a startup where you're best off taking on debt for more capital, to increase growth, also don't make sense. But it's an open question, which of these makes the least sense.
    - eru 6y ago

beambot 6y ago

According to Wikipedia, the Federal Reserve was established in 1913 -- 106 years ago. It's a relative infant as far as societal structures go. https://en.wikipedia.org/wiki/Federal_Reserve https://en.wikipedia.org/wiki/Federal_Reserve

Danieru 6y ago
Yes, you are confusing the federal debt with the federal reserve. These are two wholy seperate things. The US Federal debt has been continuous since soon after the revolutionary war with only brief periods of net savings.
- JackFr 6y ago
  In fact the compromise that led to the location of Washington DC, was one factor that led to New York being the major money center of the United States. Hamilton (of New York) wanted the new federal government to assume the unpaid revolutionary war debt of the States of which New York had quite a bit. Virginia had responsibly paid off all of its revolutionary war debt, and felt it ought not be saddled with other states debt, so as a trade off the new Federal district was moved down to Virginia. When the state debt was federalized, much of it was held in NY which became the place to buy and sell it. Another amusing story about US sovereign debt is the Louisiana purchase. As the story goes Napoleon sold Louisiana to the United States to raise money to finance his wars. The US didn’t have cash on hand to pay, so they floated the Louisiana 3’s which were bonds that paid 3% to raise the money. The agent for the bond sale was Barings, and they were sold on the London and Amsterdam markets. So it was largely the British investing class who were literally financing Napoleon.
  - Danieru 6y ago
    Oh those are interesting stories! Thank you for sharing. I would love to read more about such financial oddities of history, maybe a blog post?