You Don’t Understand the Debt

So-called “fiscal responsibility” is one of the most enduring sacred cows of American politics. Politicians across the spectrum work hard to protect their image as sound fiscal stewards. Republicans have tried (and failed) to pass several balanced budget resolutions to ensure the Federal Government’s revenues match or exceed its expenditures. Obama promised to tighten our belts in the wake of the Global Financial Crisis so as not to burden future generations with suffocating tax liabilities. Even Bernie Sanders claims to be a fiscal conservative and concedes that tax increases would be required to fund social programs like Medicare for All and a Green New Deal. Austerity is deemed prudent while deficit spending is reckless. This isn’t just bad economics: it is a fundamental misunderstanding of what the National Debt actually is. Government debt is a financial asset of the non-governmental sector, not a liability. There is no need to ‘pay down’ the National Debt. Furthermore, taxes do not fund federal spending. Federal spending is logically prior to tax payment. These observations are synthesized in a growing body of work known as Modern Monetary Theory (MMT) which offers a rigorous anthropological and historical analysis of money in addition to a detailed look at the modern real-world operations of federal spending. Understanding MMT is crucial to thinking rationally about public policy.

It’s no surprise that most Americans have a dim view of debt. Debt is a chief source of anxiety in our personal lives. Car payments, student loans and mortgages threaten our…