Jeff Bezos got the national debt wrong during last week’s CNBC interview. He has to know why.
Amazon was founded in 1994, but it didn’t issue debt until 1999.
Why did Bezos and Amazon rely for so long on equity finance over debt? It’s expensive to exchange precious shares for cash when there’s debt financing available at market rates of interest.
Readers know the answer to the debt question: since Amazon’s future earnings weren’t a sure thing, and since its survival was far from a sure thing by Bezos’s own admission, there was not an interest rate high enough to compensate loans made to Amazon. Markets for money are ruthless.
Yet by 1999 Amazon was able to issue debt, a $500 million convertible bond offering. Fast forward to 2026, and Amazon has debt of roughly $153 billion.
The Grand Canyon size disparity between the debt Amazon had in 1999 versus 2026 is plainly rooted in the fact that capital sources - fully aware of Amazon’s growing capacity to pay large sums of money back – are very comfortable lending to the Seattle giant.
To state what’s obvious, the borrowing capacity for an individual or corporation is directly related to expectations about future earnings. The more earnings grow, and the more they’re expected to grow, the more that the individual or corporation can borrow. It’s all very basic.
Which is why Bezos’s answer to the question about the national debt last week was so puzzling. About it, it’s worth clarifying up front that government spending is the biggest, most economy-sapping tax of all. Bezos’s commercial genius reminds us why: while he will and would have worked at all manner of tax rates, Bezos couldn’t and can’t innovate without capital. When governments consume either through taxation of production or borrowing against future tax receipts, they’re consuming precious capital that could otherwise be matched with people like Bezos.
So, without defending government spending born of taxation or borrowing for even a second, the debt run up by the U.S. Treasury is not an effect of too much spending. Just as not every individual or corporation can run up debt, not every government can either. Put another way, if there were lenders out there eager to fund the borrowing of all governments, then all governments would have lots of debt. Except they don’t.
Russia’s debt can be measured in the hundreds of billions, Canada’s is $1 trillion, while Haiti has debt of $3.9 billion. Why the difference between the three countries mentioned, and why the yawning debt gap between all three countries and the United States? Readers know the answer, and it’s not because the political classes in Haiti, Russia and Canada are notably parsimonious. The answer is that markets expect future tax collections for the U.S. Treasury to dwarf those of Haiti, Russia, and Canada.
We have a huge national debt not because of too much spending (though the spending is way too much, and tragically wasteful), but because markets are telling us tax collections in the future will be much greater than those of the present. And that’s too bad. How many Amazons will never see the light of day because people like Jeff Bezos are so over-taxed that Treasury can borrow so much?
