The national debt has exploded to over $ 28.7 trillion, or about $ 228,000 per taxpayer. In 2020, the national deficit was $ 3.13 trillion, the largest in U.S. history. This year’s deficit is expected to be almost the same.
Who bears the burden of all this debt? Does it really matter?
The answer was made clear many years ago by James Buchanan, the 1986 Nobel Laureate in Economics. Buchanan began with the idea that bondholders who lend money to the government are not those who support the debt burden.
Of course, those who buy bonds sacrifice current consumption, and this act of saving frees up resources, allowing the government to increase spending. But bondholders expect to be paid off in the future with enough interest to make it worth it. It was Buchanan’s idea that, since bondholders choose to make this investment voluntarily, they cannot be the ones bearing the burden of financing today’s spending.
On the contrary, the burden falls on future generations. When the bond repayments come due, taxpayers will have to reduce their consumption in the future. It is not necessarily a bad deal if the loan is used to finance productive investments that benefit those in the future. Unfortunately, borrowing is more likely to finance inefficient consumption. Politicians like to spend public money on programs that benefit their constituents. But their constituents don’t like paying higher taxes. Budget deficits allow politicians to fill their constituents with advantages and impose the bill on future generations.
Politicians just kick the box and make debt a problem for future politicians. But our nation’s ever-growing deficits cannot be extended indefinitely into the future. The Congressional Budget Office projects that, in 30 years, the federal government’s annual deficit will be 13% of the country’s revenue, and net interest payments on the national debt will absorb 47% of the federal government’s revenue.
At some point, the government will have to drastically cut programs, raise taxes or even print money to inflate debt, in order to avoid default.
Buchanan argued that it was immoral to spend beyond our means and place the burden on our children, sticking them to Sophie’s choice of massive inflation or national bankruptcy. Now is never a good time to tackle the problem of the national debt. But to borrow a phrase: if not now, when? If not us, then who? •
Bohanon and Curott are professors of economics at Ball State University. Send your comments to [email protected]