Why America’s Multi-Trillion Dollar Debt Isn’t That Bad

by / 0 Comments / 528 View / June 10, 2014

The US and global economy are influenced by a multitude of factors, but a very important aspect of a healthy economy is debt. Although it is a government’s job to support and promote the employment and socio-economic status of its people, it is also a government’s job to handle debt so that it can sustain a healthy economy. National debt is something our country has dealt with throughout the majority of its history. Although many people believe that it is troubling for a country to be in debt, this is not always the case. In fact, without national debt, our economy would become unstable, leading to severe backlash on the government and the citizens of the United States. When dealing with debt, it is important to keep certain points in mind: the size of the deficit and the size of the economy. The deficit is the difference between what the government receives (taxes, fees, trade income, etc.) and what it spends each year. The size of an economy will determine how much money the government should receive in income and what it should spend in order to keep the deficit in order. As long as the deficit is manageable, the amount of debt is beside the point. However, it is still very important to keep a nation, particularly the United States, in debt. First of all, the very roots of US economics stemmed from the ideas of Alexander Hamilton, who realized that debt could be used as leverage to keep other nations invested in the success of the United States. Secondly is the fact that borrowing money to invest in a nation’s future will increase opportunity for the nation as a whole. Therefore, the United States will never escape its national debt – nor should it attempt to.

Alexander Hamilton, treasury secretary during Washington’s administration, argued that it was imperative to have national debt because it would keep other nations dependent on the prosperity of the United States, thus creating a situation in which the United States became “too big to fail.” He learned this economic lesson from the Revolutionary War, which put every existing state into a massive amount of debt. Hamilton, who favored a strong centralized government, devised a plan to not only get the states out of debt, but to unify the government as well. He decided that the US government should pay off the debts of all the states in full, no physical strings attached. However, these grants were ridden with invisible strings that would forever keep the states loyal to the central government, as these states owed the government a huge favor for bailing them out of financial crisis. Sure enough, Hamilton’s technique worked and the states were that much closer to being truly united. After this success, Hamilton applied this technique to international policy. As the US became a rising world power, alliances with the United States were very attractive to many dominant nations such as France, Spain, and eventually, England. These countries put Hamilton’s theory into action — they began to assume the United States’ debt. They knew that by “helping the US out economically,” the US would essentially be “guilt tripped” into alliances and trading networks. The same balance still exists today, particularly amongst the relationship between the United States and China. China holds more the United States’ debt than any other country. This is because the more debt China assumes, the healthier the US economy and the healthier the US economy, the more the US spends on Chinese goods, thus helping the Chinese economy to further prosper. It is therefore necessary for the US to have national debt because debt creates a current upon which the global economy flows.

Another reason why national debt is good for the United States is that borrowed money, or credit, can actually return more cash to the economy than the amount that was initially taken out. This is because making investments increases economic opportunity for the future. One example in history when this technique worked was in The New Deal’s response to the Great Depression. In this retort, the Public Works Administration created jobs to build infrastructure and roads. Certainly loans were taken out to gather the material for these jobs and to higher the labor force but,in the end, the money produced from the use of these structures out-weighed the initial investment and helped to pull the United States out of the Great Depression.

Today, since government revenues are historically low due to low taxes and a slow economy, it is more important than ever to borrow money so that it may be invested in the long run. In fact, this principle is so common that citizens often overlook the economic value of investing in America. The encouragement is everywhere: eat local, buy American-made cars, support American technologies. Although these commands may seem very different, they all tell one essential message: support the American economy! Through the purchase of American goods, American companies and businesses are essentially borrowing money from the consumer economy and investing it in factor product markets that will strengthen the nation. As a result, these American establishments will have enough money to pay back earlier debts and to spend on improvement. But won’t the cost of enhancements put companies back in debt? The answer is yes, but remember: although investments may put companies in debt, with proper management a company should be able to make a profit with the investment’s returns. Therefore, debt that is spent on investments will increase future opportunity for the nation as a whole.

Despite the evidence in favor of national debt, there are still people who believe that all national debts should be eliminated. One argument is that if one day a nation that has assumed US debts asks to cash in their bonds, America will not have the money to pay them back and, as a result, will default on its debt. Fortunately, the reality is that nothing of this sort would ever happen because any country that assumes US debt is benefiting by US trade.  Naturally, countries are heavily dependent on the purchasing power of their currency, but even more so, if a country asks for its money and collapses the American economy, this country will not only lose all of their investment, but will also squander a vital trading partner. Other people worry that in order to sustain the record high debts America faces today, the US Treasury will need to issue more money to be printed, thus causing major inflation. The truth is that the high price tag on our debts seems larger than it actually is. Although the dollar amount of national debt is sky high (17.5 trillion dollars), our economy is also larger than ever and can handle more debt. Just as a wealthy person can pay a mortgage that would seem impossible for someone of lower socio-economic status, a larger economy can handle a larger amount of debt than a smaller economy. Also, despite the large amount we do owe, the national deficit has been decreasing, thus keeping the national economy healthy. In summation, those who believe that national debt is deleterious for the US economy are simply not informed of just how lucid the worldwide economy can be.

So next time you pass the US National Debt Clock in New York City’s Times Square, don’t be daunted by the rapidly increasing place-values. Instead, question how this money is being spent and if the US’s expenditures will eventually create revenue, or will forfeit an economic loss. Although our country’s debt is key to the health of our national (and worldwide) economy, it is essential that our government is strategic in its spending. As taxpayers, we trust the US government to make smart investments with our tax dollars so that, ultimately, the money will come back to us in the form of funding for essentials such as healthcare, education, and renewable energies. If our government’s investments are unwise, however, they will taint the economic integrity of our national debt. It is therefore crucial that we citizens play an active role in highlighting healthy investments to our government. National debt can be a valuable tool, but we must ensure that it is well financed for our economy to thrive.

 

Works Cited

Kohn, Sally. “USA TODAY.” USATODAY.COM. USA Today, 24 May 2011. Web. 13 Mar. 2014. <http://usatoday30.usatoday.com/news/opinion/forum/2011-05-24-Dont-believe-national-debt-hype_n.htm>.

Lauter, David. “Four Facts about the National Debt You May Not Know.” Los Angeles Times. Los Angeles Times, 16 Oct. 2013. Web. 13 Mar. 2014. <http://articles.latimes.com/2013/oct/16/news/la-pn-national-debt-facts-20131016>.

Mayhew, Ann. “WHY THERE IS NOTHING SCARY ABOUT THE U.S. NATIONAL DEBT.” Www.scholarsstrategynetwork.org. University of Tennessee, n.d. Web. 13 Mar. 2014. <http://www.scholarsstrategynetwork.org/sites/default/files/ssn_basic_facts_mayhew_on_debt.pdf>.

“The Ten-dollar Founding Father Does Brussels.” The Economist. The Economist Newspaper, 14 Feb. 2012. Web. 13 Mar. 2014. <http://www.economist.com/blogs/democracyinamerica/2012/02/alexander-hamilton-and-eu?zid=295&ah=0bca374e65f2354d553956ea65f756e0>.