Without defending debt spending at all, this claim is misleading because it has the defense budget too low. It's just listing the ~$820 billion Defense Department budget, and not counting things like Veterans Affairs, which by itself is another ~$350 billion. You never get the actual total for defense-related spending, because it's spread across different areas of the budget. This is a comment about how defense spending is always higher than people claim it is.
But this is also misleading because we don’t agree on what counts as defense, so we call everything defense.
The armies of theoretical physicist working on new optical devices to study fusion could fall under the defense department if their work has some slight application for nuclear weapons, even though the economy benefits much more having a skilled workforce With strong science backgrounds.
Its easy to parse this though. If the funding for these physicists comes from a defense source like DARPA or one of the many other places where defense funds research, then it counts in the defense budget.
Sure, but that defense spending number only gets higher the more we add on to it. The point is that it's not going to be lower than the debt interest no matter what. I don't think it's misleading to say that we aren't being told the upper bound of defense spending.
Yes, paying for soldiers is defense spending. That's a fair point about Medicare, but veterans benefits are far more expense than general public welfare spending (per person), and that difference is substantial given the size of the US military.
This is misleading. Owe 35T and pay off 100% the interest and next year you nominally owe the same amount, but it’s a smaller burden every year. Similarly it’s possible for the nominal debt increase while things are getting better. What matters is how the debt burden is changing over time and critically if borrowers are requiring higher interest rates on new debt.
Understanding the impact of national debt is a lot more complicated than a single number, though obviously what’s actually happening is unsustainable it’s not as simple as how much a single number changes over time.
But the headline compares it to defense, which also tends to grow with GDP. So it's a substantive fact that debt service is more than defense spending.
It’s really not a consistent fraction of GDP, and it’s near a record low right now.
Defense spending was officially 2.7% of GDP in 1999 and that’s roughly where it is today, but that’s really low by historic standards. It was 4.9% GDP in 2009 in the middle of a war but sat at 8% through the fifties even after the Korean War ended, and hit 11.3% during it.
Holding the country fixed, I think defense spending as a fraction of GDP probably varies less than debt over time? Like, defense spending of course spikes during wars, but so does debt! (Which is indeed how it is often funded.)
> This is actually misleading. You’re only right if the US stops spending
This is actually misleading, your statement is only correct if “spending” is replaced with “additional borrowing”. (Assuming the federal government has non-zero revenue, “spending” does not imply “additional borrowing”.)
Moreover, GP’s broader point – that the burden of federal debt can be reduced even if the total amount is not – applies more broadly than just the static-total-debt case, it can be true with additional net borrowing, so long as the debt service cost at year y+1 is a smaller share of the GDP than in year y (assuming debt service relative to debt for simplicity, this would hold if the debt: GDP ratio was the same or less, irrespective of the nominal, or even real, level of debt increasing.)
E.g., suppose the US has $25 trillion GDP and 37.5 trillion national debt. Over the course of one year, it reaches $26.25 trillion nominal GDP, $38.625 trillion nominal national debt, and has experienced 2% annual inflation, so that, in base year terms, real GDP is $25.735 trillion, real debt is $37.828 trillion. Nominal debt is up, Real debt is up. So is this worse? No, because debt:GDP dropped from 1.5 to 1.47, so – again, assuming constant debt service costs per $ of debt – the share of output needed to service the debt is reduced.
Clinton presidency is what comes to mind. Higher taxes, lower deficit, there was a real concern what would happen if the government stopped borrowing money.
More taxes and lower defense spending made a huge impact, though solid economic growth obviously helped. We had an actual budget surplus from 1998 to 2001 though it was quickly ended by Bush.
Republicans always care about the deficit more when a Democrat is president, so the Republican revolution had to do something useful, and they decided to focus on the debt and the deficit since Russia and China were too peaceful back then, and they were wary to go after illegal immigration after Pete Wilson losing California. Bill Clinton, being a blue dog, really had no problem with that (they also got to cut a lot of welfare that Bill Clinton also didn't care much about). But this actually horrified the Republican leadership, as what they say and what they want are usually very different, hence Dick Cheney's comment on surpluses being evil.
Federal revenue as a share of GDP (the best measure of across-the-economy effective tax rate) went up from 2020 (16.0%) to 2021 (17.2%) and from 2021 (17.2%) to 2022 (19.0%).
Federal deficit in both nominal and share of GDP terms dropped in the same intervals, 2020 ($3.13 trillion, 14.7%) to 2021 ($2.78 trillion, 11.8%) to 2022 ($1.38 trillion, 5.3%).
You asked about “taxes went up”. There were (as is frequently the case) both tax increases and decreases in both years. How would you assess whether, overall, “taxes went up” or not other than by the economy-wide effective tax rate?
The ball's in your court to clarify, because the phrase "taxes went up" could mean total collections in real dollars, it might mean total collection in real dollars per capita, or top theoretical marginal income rate, or average effective rate (which you just denied), or just income taxes and not other taxes, or income taxes and payroll taxes, ad nauseam.
There's no point finding historical examples only for you to declare that it doesn't count because it doesn't match your unstated hidden idea.
The comment is in reply to this statement:
" dgfitz 1 hour ago | root | parent | next [–]
Show me any time in the past 50 years where taxes went up and the deficit went down."
Maybe you meant to reply to the parent? Because the 90s is within the time frame.
> interest costs are expected to exceed Medicare spending this year, making interest on the national debt the second largest line item in the FY 2024 federal budget, behind only Social Security
I'll take that bet. I don't even think we'll see an attempt at the federal government being fiscally responsible for another 15 years (though I do suspect things will get better in the late 2030s).
Either way the US will be fine barring something stupid maneuver like embracing modern monetary theory.
OP here. Spending more than you take in tax revenue leads to a budget deficit. Budget deficits have to be made up with borrowed money, which in practical terms are treasury bonds. Interest on the borrowed money starts out low. But with the power of compound interest, it will eventually swallow and consume everything if left unchecked because it grows exponentially. The way this is fixed is by balancing the budget and leaving a little budget surplus to pay down the debt.
All of the money that would’ve been going towards the military, the schools, the electric grid, the roads, job training & placement for unemployed people, food stamps (snap), social security, medicare, agriculture storage, and the various 3-letter departments must go to interest on the debt first and none of the money is left over to go to programs for The People anymore.
What would you do as a congressman if for every $4.5 Trillion you brought in from taxes, you saw $6.2 trillion being spent and were left with a $1.7 Trillion budget deficit?
$870 Billion of the money spent (14%) is the interest growing on the total government debt which is at 34 Trillion now. These are all the real numbers. What would you do as a congressman whom has the power to make changes and balance the budget?
I don't think the story is that simple when we're talking about a country that can print the currency that be debt is demarcated in.
A budget deficit means that the government has chosen not to print enough money to offset its spending. Now, the government printing its way to liquidity does have consequences, but fundamentally balancing the US federal budget is not like balancing a house budget.
And because the government can print the money at any time, it really doesn't matter how fast the interest is growing. What matters is whether people keep showing up to give the government the money.
Persistently high inflation and economic decline, plus geopolitical blunders, leading toward US treasuries beginning to lose their status as global reserve asset and precipitating a US debt crisis.
Debt to GDP is what matters and many are far worse than the US. A huge percent of US debt is domestically held too so it’s just kind of pumping money around.
Not saying this is a great way to do things, just that we are nowhere near the worst off.
The U.S. is limited by the productive capacity of the nation. The government can’t command output that doesn’t exist by printing money.
It can, however, crowd out private investment and redirect the country’s resources via fiscal policy. It’s been happening for many decades and there’s really no scientific or pragmatic reason to suggest it’s somehow a fundamentally different system than it was 30-40 years ago when people were, wrongly, predicting it’s imminent demise.
If you think “it’s different this time” the burden is on you to prove why.
I highly recommend Lyn Alden, who spends a lot of time on analysis of the macro conditions and potential outcomes, expressing her findings and opinions in clear, engineering language.
I wouldn't say that economics is a /pseudo/science, but it and its conclusions/recommandations are heavily affected by politicized thinking. But even Adam Smith also remarked on this phenomenon, so that's hardly a new development.
Economics is the only "science" I can think of where the leading thinkers refuse to practice anything remotely close to the scientific method.
If we ignore the obvious political aspect, then the field is entirely based on trend prediction. Trend predication is not science. It's observation.
You can't have science without testable, falsifiable hypotheses. I recognize that the nature of macroeconomics makes testing hypotheses comparatively difficult. But it's not impossible, and anyone who says it is, is likely an economist.
Imagine what the world would look like if physicists got together and told the rest of the world that testing hypotheses isn't possible/feasible. That's where we've been at with economics for it's entire existence as a "science".
No one knows because it depends on a lot of variables that cannot be predicted in advance. The only major short term threat is that we default due purely debt ceiling debates / brinkmanship, not because of the burden of the debt itself.
The debt becomes a very real problem if hegemony of the US dollar as a reserve currency is ever disrupted. I don’t see that happening anytime soon, though.
> What's the future of the state as an institution?
Very high tax rates, unfortunately. Although there’s worse outcomes (currency destruction). These are the possible long term consequences.
If currency devaluation is so devastating, why do so many countries try so hard to do it? In moderation, of course: everything is obviously bad in the extreme. However, it's a constant source of international tension for a country to promise not to devalue their currency, devalue it anyway, and for this to make their economic neighbors upset. Often they will lay into each other without even bothering to explain why currency devaluation might be desirable, because it is such basic macroeconomic 101 / political economy 101 knowledge that is expected to be understood by everyone listening. How do these actions jibe with the idea that currency devaluation is a fate worse than death (err, very high tax rates)?
Level up your macroeconomics before you catastrophize over the prospect of currency devaluation.
If you don't want me to charitably interpret your words, I don't have to, but now you have to defend them. Explain why the US will be different from the last 500 years of reserve currencies to find themselves in this situation. Excessive government debt is a problem, but it isn't a new one. Youtube thumbnails with flames and red arrows are new, but they aren't a problem.
It can be stretched FOREVER as long as the USD is the primary international currency reserve. Effectively, the rest of the world continually sponsors the U.S. debt - and its international war industry.
Once the USD stops being the primary reserve currency, then inflation will skyrocket and things become truly painful. The U.S. will feel the pinch like other nations whose economies have collapsed as a result of runaway spending.
It’s possible for the system to last hundreds of years or go really bad over a decade. Generally if debt is increasing but debt to GDP is decreasing then that’s no problem as the economy can out grow the debt. Much of US history falls under that umbrella.
Unfortunately, slowing GDP growth associated with a developed economy has pushed us into the red more often and for longer.
It is also important to remember that the money isn't borrowed out of thin air. Other nation states, corporations, and individuals have lent all this money to the US government. Lenders lend when and where they believe they will receive a return on their investment.
If and when the US approaches a position where it cannot pay the interest owed, you'd expect that to coincide with a reluctance by the lenders to continue lending.
So, you could argue that the US is not defying any odds, but rather it is consistently performing at or near the odds that have been predicted by the global public.
On other side principal is being rolled over very regularly. If this process fails, it will all fall down. Likely it will be printed to existence, but then inflation hits and taking money and moving it to any other assets make lot more sense. Even if that is harder to use.
A lot of smaller countries get bailed out by large countries and when the small countries go down only a small % of people and next to nothing of humanity is impacted.
US defaulting on its debt is likely going to be a far bigger problem than climate change or a small war. It also sets entire humanity back by decades.
> US defaulting on its debt is likely going to be a far bigger problem than climate change or a small war.
I wonder how much you think the US defaulting on its debt would cost the world. It would be fairly disastrous, yes, but as a Forbes headline said a few weeks ago: "Climate Change Will Cost Global Economy $38 Trillion Every Year Within 25 Years, Scientists Warn."
tl;dr: at some point, they will soft default. This means they stop paying high interest rates, inflation will run hot for a while, the debt will devalue, and with freshly reduced debt/GDP they they will spike interest rates to end inflation.
I like your optimism but because bonds can be resold on the open bond market, the bond holding adversary will still receive their money. Holding your opponent’s debt or currency opens the door for currency wars. Flooding the market with bonds of your opponent will simultaneously raise money for your military and hurt your opponent’s ability to raise funds for their military defense —- making it an issue of national security. Because bond buyers prefer stability, seeing bond interest rate changes spooks individual bond holders to sell even more. This is known as “shaking the tree” as a strategy to collapse prices even more.
I suspect our financial system will finally collapse when the United States government is no longer capable of borrowing fast enough to pay off/refinance all our debts and eventually defaults due to lack of available manpower
Likely be a while. Several countries with worse public-debt-to-gdp ratios and their financial systems haven’t collapsed. Wouldn’t be surprised if we see nuclear war before it happens so it kinda becomes moot.
The US money supply is property of the US Treasury. Congress just needs to call those puppies home by increasing taxes and aggressively pursuing illicit and off-shored wealth.
I dont think the US numbers are comprehensive and include state and local tax collection. Different Nations have radically different taxation schemes and reporting.
for example, 2022 federal revenue was 4.4T, states were 3.7T and local was 1.6T
FRED has SALT revenues around 2.038T[1] in 2023. It looks like about 1.5T is State. This seems to be up 25-35% over historic averages when adjusted for inflation. It has spiked in the last 2 years for reasons I'm not clear on.
FRED also had Federal Receipts at about 17% of GDP [2] between the Trump and Biden terms, which seems average. This was preceded by 15 years of below-average receipts (by this metric) during Bush43 and Obama.
Maybe your data source is more accurate than the fed? Otherwise, it seems like there is plenty more room to tax. It also very clearly matters who you tax. The poor and middle class are mostly tapped, but JP Bezos and big private finaceers have way too much and could stand to be taxed much harder.
Thank you for responding. I have to admit I do in general trust the Fed, and retract my point until I can find out what the differences are.
I think you also have to take into account differences in private spending When comparing capacity for taxation. It's one thing to pay 45% taxes when that includes Healthcare and pensions, and another to pay 45% plus another 10-20%.
I think it matters both who you tax and what you do with it. You can outrace continual debt spending with positive Roi Investments but not negative ROI.
And getting people to buy into this Ponzi scheme is getting more and more expensive. Hence the ballooning interest payments. As debt reaches maturity, more and more of it will have to be refinanced at a higher “apr”, since nobody is even contemplating drawing down the principal. This could further drive up the rates.
To be fair, a lot of that debt has come from foreign wars and veterans benefits. When you look holistically at defense/war spending and its follow-on effects, its far and away the largest outlay of the US budget across several generations.
In fact, it's hard to think of anything at all over the last 100+ years that has been as well-funded as the US military-industrial complex, especially if you include nuclear and space spending.
Saying that the USA is in trouble because of US-dollar-denominated debt is like saying that Dwight Schrute is in trouble because he owes too many Schrute-Bucks.
Who are we paying this interest to? US fiat is accepted worldwide because of Petrodollar and US Navy. What do private banks have to back their money printing machines?
Why isn't the US Goverment printing its own money out of thin air? Why is that privilige given to private banks?
I’m old enough to remember reading articles during the Clinton presidency that were handwringing over what would happen if the U.S. paid off all national debt and there were no more treasury bonds to purchase. Seems like a parallel timeline now.
Probably, but by far the most likely scenario is a decade or more of persistently high inflation as bondholders (i.e. your pensions and retirement accounts) and normal people are pick-pocketed to bring down the nominal debt load.
It definitely hurts those who hold debt. Maybe you're thinking of borrowers? Certainly debt holders are very damaged by inflation, too. Especially long term debt holders (such as the previously mentioned pensions/retirement accounts).
If you have a 30 year bond paying 2% and inflation goes up to 4%, you're making -2% on your bond. Sure, that's not as bad as -4% for cash holders. But it's not good at all if you're planning to retire someday as the compounding effects of inflation over the decades wipe out your retirement benefits.
Also the impact could be more immediate if you need the principal. As now your debt is worth lot less if you sell it. See the last years bank failures...
Investors also know they'll be among the first the government calls upon to foot the bill.
Capital gains and unrealized gains taxes are among the increases the current administration is pitching (the unrealized gains is technically more of an advance than an increase, but because it is owed before it is realized, it will feel like an increase).
Add to that the perennial desire to increase corporate taxes (again, directly affecting investors) and it's probably safe to say that if you're an investor, you are the last person to feel good about the prospect of a fire sale shoring up the government.
Total wealth held by US billionaires is only 4.5 trillion. US owes like 34 trillion. Not sure sending the billionaires to 0 and the resulting economic collapse gets us where we need to go.
And US real estate holdings by everyone (all entities) are $119 trillion
there is a lot of privately held notional value here. we can go back to doing in-kind tax payments, cattle and land, and to the tax authority, if it came to that. some austerity measure in the future.
a lot of countries don't have this quirk where the government owns a lot, earns a lot, has natural resources, as well as privately held holdings that eclipse all of it
If billionaires and multi trillion dollar companies paid their fair share; AND USA reduces spend in “defense”. We might actually see the daylight. But we all know that will never happen
If you look at FRED data, even complete confiscation of all wealth from the top 0.1% is about $20T. IOW about 7 years of deficit spending at the current rate, if that, at the cost of decimating the underlying tax base - a lot of that $20T are productive assets which you can’t really sell on the open market in the absence of buyers, all of which you’ve just stripped of capital
Total wealth of all US billionaires is 4.8 trillion.
Tax it at 100% and the US still owes 30 trillion.
US accrued over 2 trillion in debt just in 2023.
So give it 2 years and all the billionaires are destitute, companies and employment collapses because owners had to dump all of their shares on the market and the US still owes the same or more.
Then what?
The US has a spending problem, not an income problem.
It is amazing how pervasive the misinformation around the wealthy and their share of income is. I have smart friends who think every worker could take home >100k/yr if we simply taxed the rich and redistributed the money.
They are shocked when I explain total GDP per capita is 76k/yr, the government takes 30k of that in taxes, and then borrows another 11k.
