Deficit-worriers portray a future in which were impoverished by the need to pay back money weve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.
This is, however, a really bad analogy in at least two ways.
First, families have to pay back their debt. Governments dont all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Second and this is the point almost nobody seems to get an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves....
Its true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollars worth of foreign claims on America is matched by 89 cents worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation thats already deep in hock to the Chinese, youve been misinformed. Nor are we heading rapidly in that direction....
And thats why nations with stable, responsible governments that is, governments that are willing to impose modestly higher taxes when the situation warrants it have historically been able to live with much higher levels of debt than todays conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.