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I wish I had a better mental model for thinking about national debt. Absent that, it's too easy to pattern-match it to personal debt, and automatically you get

I wish I had a better mental model for thinking about national debt. Absent that, it's too easy to pattern-match it to personal debt, and automatically you get all the usual judgments and moralizing along with it.

ericmay 4y ago
The first rule here absent all others is to understand that the national debt does not function like household debt and so you can't draw comparisons directly. Some of the comparisons are truthy but not necessarily correct. Another rule to use is that not all spending is treated equally. The country going in to debt to fund projects that boost economic activity (typically measured as GDP) is not the same as the country going in to debt for a different class of projects, for example. Often times we look at national debt but we don't have a great mechanism for evaluating return on that debt.
yazaddaruvala 4y ago
> It’s hard to relate national finances to personal People keep saying this and it’s not really true. Even MMT really can be translated to personal finances. Here is the simple explanation: Households and individuals consume the goods they buy. Some excess goes towards investments. Governments do not consume. Building a road/bridge/building/dam is an investment to “have the nation make more money”. Even when government spends money on “dumb things” a F35 while over paying significantly, it’s an investment. Even if this project doesn’t become “something” itself it can still be a huge national investment. 1. The people who worked on it will spend the money they earned. 2. The people got training that was useful. 3. Technology likely progressed in many small ways that aren’t the end product (eg better wind tunnel simulation, or better GPS chips) and even by learning “what not to do next time”. That said, obviously the government should always aim for better investments rather than worse investments. Imagine a household that kept taking debt to buy houses and renting those out. As long as the ratio of TotalRent:TotalDebt was healthy at N-1 houses, then the same TotalRent:TotalDebt ratio for N houses continues to be healthy. No money ever spent on consumption, only on investment. Therefore NationalGDP:NationalDebt is the ratio to watch for. That is how you understand national finances and relate it back to your experience. Additionally, the household could only have 5 houses in the same neighborhood. So a financial shock could hit it badly. The nation has X TT of investments that are all distributed across city centers, rural areas, and even digital. It’s not just diversified, it is the whole pie. A large enough shock to cause a destabilization of the NationalGDP:NationalDebt for a country as large as the USA is roughly enumerated as: an extinction event (or close enough), a second US civil war, or a declaration of active war against the USA on US soil. It could also happen because of terribly large scale corruption but it’s unlikely at the scale of the USA.

ericmay 4y ago

The first rule here absent all others is to understand that the national debt does not function like household debt and so you can't draw comparisons directly. Some of the comparisons are truthy but not necessarily correct. Another rule to use is that not all spending is treated equally. The country going in to debt to fund projects that boost economic activity (typically measured as GDP) is not the same as the country going in to debt for a different class of projects, for example. Often times we look at national debt but we don't have a great mechanism for evaluating return on that debt.

yazaddaruvala 4y ago

> It’s hard to relate national finances to personal People keep saying this and it’s not really true. Even MMT really can be translated to personal finances. Here is the simple explanation: Households and individuals consume the goods they buy. Some excess goes towards investments. Governments do not consume. Building a road/bridge/building/dam is an investment to “have the nation make more money”. Even when government spends money on “dumb things” a F35 while over paying significantly, it’s an investment. Even if this project doesn’t become “something” itself it can still be a huge national investment. 1. The people who worked on it will spend the money they earned. 2. The people got training that was useful. 3. Technology likely progressed in many small ways that aren’t the end product (eg better wind tunnel simulation, or better GPS chips) and even by learning “what not to do next time”. That said, obviously the government should always aim for better investments rather than worse investments. Imagine a household that kept taking debt to buy houses and renting those out. As long as the ratio of TotalRent:TotalDebt was healthy at N-1 houses, then the same TotalRent:TotalDebt ratio for N houses continues to be healthy. No money ever spent on consumption, only on investment. Therefore NationalGDP:NationalDebt is the ratio to watch for. That is how you understand national finances and relate it back to your experience. Additionally, the household could only have 5 houses in the same neighborhood. So a financial shock could hit it badly. The nation has X TT of investments that are all distributed across city centers, rural areas, and even digital. It’s not just diversified, it is the whole pie. A large enough shock to cause a destabilization of the NationalGDP:NationalDebt for a country as large as the USA is roughly enumerated as: an extinction event (or close enough), a second US civil war, or a declaration of active war against the USA on US soil. It could also happen because of terribly large scale corruption but it’s unlikely at the scale of the USA.