Why I Favor Keeping the National Debt as Low as Possible

I believe the national debt should be near zero most of the time. I think that the country should run a deficit only during recessions (someone has to prime the pump), times of extreme danger (e.g., a war against an opponent that is truly dangerous), or when there is an extraordinary investment opportunity e.g., the Louisiana Purchase). The rest of the time, the government should run a small surplus to pay down the deficits it ran during those rare occasions.

Obviously, debt imposes some cost – in the future, interest and principal payments must be dealt with. But why not keep debt “manageable” as many have suggested? Why this desire on my part for keeping it near zero?

Here are the reasons I take this fiscally conservative position:

1. Once you start down the path of running up the debt, its easy to continue (see exhibits entitled: “Reagan, St. Ronald the” and “Bush, George W.”) It took 16 years – from 1964 to 1980, to reduce debt held by the public as a percentage of GDP from 40.1% to 26.1%. Yet it took only eight years – from 1980 to 1988 to go back from 26.1% to 41%.

2. Piling up debt is easier than making hard choices. That adds further inducement to potentially profligate presidents to avoid those hard choices.

3. Government spending (at cost) is a component of GDP (see the BEA’s NIPA Table 1.5.6). An unscrupulous president can pull a Reagan – borrowing and spending a fortune, and that president will, at least in the short term, boost growth rates. This makes it hard to determine what other things each president did that was a good or poor policy by making comparisons between administrations (and their policies) difficult, both because of the artificial boost in the current GDP growth, and because of the future reduction in GDP growth (when interest and principal payments become an issue).

4. One reason that individuals or companies borrow is because there are positive tax ramifications. The US government does not have any tax benefits from borrowing.

5. Things sometimes go horribly wrong. Pearl Harbor-wrong, insurrection-wrong, pandemic-wrong, oil embargo-wrong, idiotic economic policies-wrong, financial meltdown-wrong. Sometimes plain old miscalculation-wrong. When things go horribly wrong for a person or a company, there is bankruptcy. But if a person or a company go bankrupt, part of the reason they might be able to have a second chance is that the social structure that makes commerce possible is still there. If the government goes belly up, who provides roads and infrastructure and keeps the Canadian hordes at bay? The damage that this could cause to a society is huge. And we have plenty of examples of countries that have been at or near bankruptcy in the last century. We know what happens to the standard of living of most people in the country. Its pretty clear that this is a fate to be avoided. And a country that carries a huge debt when something unthinkable happens has less freedom of movement than a country that carries no debt. Additionally while there may be 20 entities in the world that can bail out Argentina, and ten that can bail out Mexico, there is nobody big enough to bail out the US.

Anyway, that’s what I came up with on the fly. Perhaps if I sat down and really thought about it, I’d come up with a few more. Your thoughts?