Thank God We Can Take On So Much Debt

Robert VerBruggen  National Review April 24, 2020

 After the obligatory period of dysfunction and gamesmanship, Congress is finally giving some more money to its small-business rescue plan, which ran out of funds soon after launching. For those keeping track at home, that’s another $300 billion piled atop the $2 trillion original stimulus bill.

As something of a deficit hawk I’d normally have an aneurysm at figures such as these, but of course this time is different. Businesses are shut down, workers are idled. It would make no sense to force them all to just absorb these losses and go bankrupt or even hungry. 

Borrowing in bad times is a commonsensical way to make the worst economic conditions a little bit better, or to “smooth consumption” if you want a fancy term.  But if now is a good time to turn on the money hose, it’s also a time to feel grateful that we live in a country where this is even an option. We can make trillions of dollars appear by snapping our fingers despite a track record of failure when it comes to managing our previous debts and our entitlement programs. People born elsewhere are facing this crisis with much less cushion and far fewer options.

Think for a second about how we haven’t been saving up for a rainy day. Even before the pandemic hit, the Congressional Budget Office pegged our national debt at $16 trillion, or about 80 percent of a year’s GDP.

That debt — driven chiefly by our entitlement programs, unreformed in the face of mass Baby Boomer retirements — was set to increase to more than $30 trillion by 2030, at which point it would have been about 100 percent of GDP.

A trillion here and a trillion there to deal with a pandemic seems almost trivial in comparison with what we were already facing: So what if our debt matches our GDP right now in 2020 rather than taking until 2030?

Still, one might worry that this mountain of bills would make it hard to borrow even more. But no, interest rates are incredibly low, because people throughout the globe want a safe place to put their money right now and that place is the United States.

And as Karl Smith explained in a recent Bloomberg column, the fact that the U.S. issues debt in its own currency also changes the picture, because we can avert a debt crisis by simply printing money. (This in turn causes other serious problems, though, such as reducing the value of the dollar.) The starring role of the dollar in the global financial system provides us another layer of protection.

This doesn’t mean there’s no need to fix the entitlement system. If interest rates increase in the future, it will get very expensive to maintain a debt in the mid 14 figures. What it does mean is that we are incredibly fortunate as a society, able to borrow ourselves into oblivion even as the economy expands and then borrow still faster to deal with an acute crisis.

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https://finance.yahoo.com/news/thank-god-much-debt-103032423.html