The Source of Our Debt Isn't What Left and Right Think It Is
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Back when Silicon Valley giant Cisco Systems was much less than a unicorn, Valley eminence Don Valentine purchased 33 percent of the then-unknown company for $2.5 million. Stop and think about that for a second. And in thinking about it, please consider the late Valentine’s intrepid investment through the prism of the present. While a third of Cisco equity could formerly be had for $2.5 million, at present the San Jose, CA behemoth has $6.65 billion in debt.

What’s the story here? Most would reply that the story is pretty basic. Cisco’s odds of success upon opening its doors in the 1980s were pretty slim, but at present its success is an established fact. While Cisco was once valued somewhere south of $10 million, its market capitalization in 2023 is $217 billion. All of which hopefully explains its debt. Cisco’s market cap renders it credit personified.

The above truth requires re-airing given the endless wailing about federal budget deficits and debt. New York Times economics columnist Peter Coy recently concluded in solemn terms about the debt, that “only a fix including more tax revenue remains.” The bet here is that Coy could be convinced otherwise, and not with some supply-side happy talker argument. More on supply-siders in a minute.

For now, it’s no insight to say that Coy is approaching federal debt in backwards fashion. The surest sign it’s not a problem to pay off is paradoxically all the federal debt. If market players with real skin in the game actually feared the U.S. Treasury’s creditworthiness, Treasury would have quite a bit less debt. To believe otherwise is to believe that markets are stupid. They’re not.

It’s all a reminder to Coy that we don’t have a too-little revenue problem as he contends, nor do we have a too-much-spending problem in the way that his ideological opposites imagine. What we have is a too-much-federal revenue problem, and $30 trillion+ in federal debt is flashing evidence of the validity of the previous assertion. Stated simply, absent investor expectation of abundant federal tax revenues now and into the future, there would be much less federal debt. Again, obvious stuff. Money once again isn’t dumb. Hand-wringing over debt presumes money is intensely stupid.

Which speaks to how very much both sides have butchered the government debt argument. In other words, this write-up isn’t just a critique of Coy.

Regarding government spending, it’s an economic somnolent, period. It doesn’t even create “sugar highs.” Government spending is the process whereby politicians substitute their microscopic knowledge for knowledge-pregnant markets in the allocation of precious resources. Politicized mis-allocation of resources immediately harms economic growth.

That it does first indicts supply-siders who continue to clamor for revenue-maximizing tax hikes. They too get it backwards. The goal should be reducing taxes so much that federal revenues actually decline. Government spending is a tax.

Notable here is that if the tax cutters actually passed tax rate cuts that actually pushed down federal revenues, Coy would get his way. Deficits would decline in the face of lower revenues now and into the future, and they would because money yet again isn’t dumb.

John Tamny is editor of RealClearMarkets, President of the Parkview Institute, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors ( His latest book is The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage For the Crypto Revolution.

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