No individual, corporation, or government ever gets to choose how much money to borrow. Only in academic and pundit circles is such a fanciful notion accepted as realistic.
A recent op-ed penned for a think tank purported with alarm that “Congress Knows It Has a Spending Problem, But Won’t Fix It.” And at Fox News last week, Ted Jenkin published an opinion piece in which he predicted a $50 trillion national debt by 2030 alongside the expected rhetorical flourish about how “America has a serious promises problem and is writing checks that it won’t be able to cash.” More realistically, the $50 trillion national debt that Jenkin predicts in 2030 is evidence that the U.S. may or may not have many problems in 2030, but none of them will involve the nominal level of debt. And that’s not a defense of government spending or borrowing, but it is a comment that those focused on the debt have little understanding of why there’s debt.
Which requires a brief digression to government spending itself. That it’s problematic is settled science. Governments can only spend in politicized, centralized fashion insofar as the private sector in which all spending power is produced has less in the way of resources to allocate.
Which means the crisis of government spending is now, though it’s unseen. How to measure all the economic progress not taking place because government is such a size consumer of precious resources?
As for the debt run up by governments that love to spend, it’s not a future crisis as academics and pundits contend, it too is a now crisis firstly because the borrowing enables even more centralized, politicized consumption of precious resources, but also because it signals excessive taxation now that’s enabling the borrowing.
Jenkin contends the federal government is “writing checks that it won’t be able to cash,” but if true our federal government wouldn’t be able to borrow. That explains the previously expressed point about how if debt reaches $50 trillion in 2030, that won’t be a sign of a debt problem. Think about it. If the U.S. had a debt problem, it most certainly couldn’t borrow $11 trillion more between now and 2030.
As for the crash that Jenkin et al contend is coming, markets don’t wait to price in a calamity. What’s known is priced right away, which means that investors with skin in the game have digested and priced the endless alarmism of think tanks and pundits, only to conclude that they’re wrong.
Why are they wrong? The answer can be found in all the debt. Jenkin et al are focused on symptoms (the debt) of the real problem: too much tax revenue now and the expectation of quite a bit more tax revenue in the future. There’s quite simply no way Treasury could borrow so much now unless the markets expected much more tax revenue in the future.
Which brings us back to the opening line of this opinion piece. Only academics and pundits innocent to markets would believe anyone – whether individuals, businesses, or governments – could choose how much to borrow. That’s not how markets work.
In real markets, lenders always and everywhere tell would-be borrowers when they’ve overextended themselves. That the world lines up to lend to the U.S. Treasury is a signal yet again that lenders don’t think the problem is too much debt, and that’s because they’re yet again confident in soaring future tax collections by Treasury.
