Best estimates are that American debt cannot be fixed with taxes on capital
marginalrevolution.com
marginalrevolution.com
The US has many crises, but debt isn't on of them.
That's equivalent to 'but everyone else is doing it!' Our debt either is, or is not, sustainable.
Money can always be printed, but not without consequences. (Just ask Germany or Zimbabwe).
So yes it is literally impossible for the US to default on that debt unless it actively chooses to, but that doesn't mean that we can just rack up arbitrary amounts of debt without any negative ramifications.
Additionally, the USA is unusual in that it is possibly the only economic powerhouse that is largely self-sufficient in most regards (raw materials, people, etc). We import most goods because they are more convenient, slightly cheaper or more tax advantageous to source elsewhere, not because we have to. One of the reasons the USA has tended to an isolationist attitude is because it could do so without much consequence. The world has much more to lose than we do should we should to inflate our way out of debt.
Hardly - the US could not maintain its current economy and standard-of-living as an autarky. The US is only able to maintain its current standard-of-living because of the massive amounts of work being down outside the country. Manufacturing in China is an easy example, but not the only one.
> The world has much more to lose than we do should we should to inflate our way out of debt.
Not really. Through a number of effects (both direct and indirect), if we were to try and inflate our way out of debt of this magnitude, we would tank our economy in the short- and medium-term, just the same way Germany, Zimbabwe, and Thailand did[0]. Those economies did recover in the longer run, but not without serious repercussions in between, and it can literally take multiple generations just to get back to the starting point, to say nothing of recovering the same global standing.
There is no way the US would want to regress to the sort of economy that this would involve. It would be a total economic disaster.
[0] This would be true even before we took into account the effect of no longer being the de facto global reserve currency (which would no longer be the case if we started printing hyperinflation-levels of money).
More important than creating money is having by far the biggest guns. What does it mean to be owed a "debt" by the person who controls the currency and most of the guns?
Yes, there are "consequences" to creating more money. Every act has consequences. If someone advises you to drink a lot of water, should I respond with counterexamples where someone drank from a firehose?
Without real growth the debt will continue to grow, until more of the budget is devoted towards paying interest instead of the places its needed.
American growth is mediocre, but far less so than that of other developed nations. Europe is still scrambling to find ever-larger guns with which to blow its own feet off, Canada and Australia are realizing that building an economy on Chinese demand for resources is bound to end in tears, and the BRICS are suddenly looking much less lucrative.
The US is still the driver of the global economy, and is doing kind of okay while everyone else is a basket case.
Never mind the coming Demographic crisis, in Japan, China, almost all of the EU, Canada Australia and the US eventually as well, you're right we are better than most of those but all of those are hitting a brick wall
IOW, you can not buy American debt. But you would instead buy Chinese, or EU, or Indian, or Russian. There is no "pure debt" to buy as an alternative (gold isn't the same).
Classic.
As it stands right now the US pays $430 billion a year on interest, which is less than we paid in 2008, despite adding over $9 Trillion to the National Debt in six and a half years.
https://www.treasurydirect.gov/govt/reports/ir/ir_expense.ht...
As of 2013, the national debt was $16.4 trillion; GDP was around $16.2 trillion, for a ratio of 102%. Developed countries with a higher ratio would be uh... Ireland, Italy, Greece, and Japan. Countries like Germany, Austria, Finland, New Zealand, Australia, Canada all have much lower ratios.
> What matters is not the total amount of debt, but rather the cost of maintaining it. And US Treasury bonds carry negative real interest rates.
Are you suggesting this is going to continue indefinitely?
I mean, come on. No, it will not continue indefinitely, but that is not the point. The rate of change and the feedback loops matter far more here than the sheer amount of "debt."
You are making a very, very different argument. Albeit one which is also pretty silly. The US is reliant on other countries providing it with very cheap finance, China most of all. The American military is strong, but it's not strong enough to force China to provide 0% loans. And that assumes that China even has the funds to do so; if China's economy has a major hiccup, then what? And you can't print your way out of a primary deficit, even if your debt is denominated in your own currency. This is very basic economics.
> The rate of change and the feedback loops matter far more here than the sheer amount of "debt."
Exactly. Hence the concern. Because if the US starts paying anything approaching its historical cost of debt for future borrowing, the feedback loop vicious. The only way for those feedback loops not to be activated is to argue that the US will continue to be offered ~0% loans indefinitely, which as you admit, they will not.
I'm open to the argument that the US's position is economically strong enough to weather the coming storm; I might even agree. But suggesting that there is no storm to weather (or that their debt-to-GDP ratio is not a source of weakness) is simply silly.
It's certainly true that Americans in general (and the US pension system in particular) hold a significantly larger share of US debt than, eg, China, but what of it? That makes the problem worse not better, because unlike Chinese citizens, American retirees can vote in US elections. :)
The cold reality is that 1) the US has a lot of debt relative to the size of the economy, 2) the debt continues to pile up, and 3) contrary to Cacti's argument, the US military is not a solution to this problem.
They go on to suggest that, in the US at least, taxes on labor can go a long way towards making the debt sustainable, while in Europe, neither taxes on labor nor taxes on capital will do much to make the public debt sustainable (since both are already high in Europe). Additionally, taxes on consumption can help in the US just as much as taxes on labor.
Given the current political clamor about economic inequality, I can see the financial class having "some" incentive to claim that any of the proposed fixes would not work and it would be best to leave the current system as is, ie with them owning all the money. Quoting Upton Sinclair “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
In other words, the national debt in a fiat currency should really just be considered as part of the fully diluted money supply. There is no reason to worry about the absolute quantity, only the rate of growth relative to GDP. I wrote an extended explanation here: https://devinhelton.com/why-the-national-debt-is-non-problem
It seems like the inequality debate is stuck between either doing more for education or redistributing more tax from someone/somewhere else. There is rarely any discussion of the other side of the equation -- ending government policies that might be exacerbating the problem.
For the bottom 20% of households, about 5% of their collective before tax income gets spent on the lottery, and get redistributed upward.
* http://metrocosm.com/could-the-lottery-be-the-largest-tax/
40% of their income is spent on housing. Yet, nobody ever talks about the fact that the government explicitly restricts the housing supply via zoning laws. I understand that people want to maintain the character of their neighborhood, but is that really a good justification when other people struggling to afford a place to live?
* https://www.quora.com/What-are-some-examples-of-racist-or-mi...
Why are we still spending $601 billion per year on the military? Are more fighter planes really the country's top priority? For comparison, the combined income of the bottom 20% of households is only about $200 billion.
http://www.businessinsider.com/how-the-us-military-spends-it...
* The first two posts were written by me. Not meant to be promotional and no reason to click unless you want to check my sources.
We have a not-too-bad program for housing subsidy in place today - Section 8. The government that operates Section 8 is not the same one that operates zoning commissions. And at some point , we do need to talk about land rents and taxation.
If lotteries could quietly be subsidized, the effect on monetary velocity would doubtless be significant. I am nearly certain that this cannot be quietly done, and it may have adverse effects that aren't clear at first blush. It also smacks of 1984.
I don't have any particular criticisms of Section 8, but it's an inefficient bandaid for a much bigger problem. It only accommodates about 5m households (while adding to socioeconomic segregation). For everyone else, it doesn't do anything. Why not fix the root of the problem by doing what we do with every other market, and let the free market determine housing prices.
Not sure I understand your point about subsidizing the lottery. I think we should either get rid of it, or at least turn it over to private businesses and heavily regulate it. At the moment, it's a predatory state-sponsored monopoly.
In any case, not trying to say that these are the solutions, only that the criticism of government policies like these are largely left out of the inequality debate.
Gah, let the free market decide! What a concept! We don't, you know. We subsidize the foo out of people who can afford to pay enough interest spending to qualify for a deduction. People control zoning to drive up land rents.
My version of "subsidizing the lottery" would be to pump up the payouts as a helicopter drop of money. But as it is, so little of the money actually goes back to the players that it's quite bad. It's probably a terrible idea for some reason I haven't thought of yet.