Policy Making
14. Arguments why we do not need to worry

  • The debt is mostly owed by Americans to Americans. The government, which is "of the people", borrows from the people. One may view it as one member of a family borrowing from another. John may be deeply indebted to his wife Alice, but the household as a whole is not worse off because of intra-family borrowing. Similarly, the interest on the government debt is not money down the drain, as is often believed. Yes, Americans have to pay the taxes so that the government can pay the interest, but insofar as the debt is domestically owned, the interest payments will be made to Americans. It's like Uncle Sam shifting money from one pocket in his trousers to another.
  • The major part of the government debt is covered by assets (such as the roads, tanks, missiles, and the national parks). If the government were a firm or a household, nobody could make a fuss about debt with the quality of collateral that the government has. Similarly, it can be argued that the deficit is exaggerated in that investment expenditures are included in the government budget. Sound accounting would exclude them, since they constitute an addition to assets, not a current purchase. They are not net liabilities, because they are offset by the assets purchased with them. When a household buys a house with a mortgage one does not become alarmed, because the asset value of the house offsets the liability of the mortgage.