If you believe the media hype, a storm awaits America. The US government will have to fight off neo-Nazi religious fanatics, massive climate change, financial armageddon, mass species extinction, alien invasion, dollar dominance collapse, Russia and/or China, near-earth celestial objects, new pandemics, systemic racism, and evil billionaires, likely all at the same time.
While more than one of those threats are overblown and/or unlikely, nobody knows what the future will bring other than that something bad will certainly happen at some point. So why aren’t policymakers eager to pay down the national debt? A small national debt is the best security blanket America has ever had, and arguably the reason it expanded so quickly and won all of its wars, the important ones anyway.
To pay down the national debt means, at least, to run balanced budgets consistently, which makes the current debt less onerous as the nation grows more populous and prosperous. More aggressively, it means running budget surpluses as the US government routinely did in peacetime throughout its history and as recently as 1956.
The most immediate benefit of paying down the debt is to end the recurring debt-ceiling crises. If America’s putative leaders really want to prepare the nation for future exigencies, they need to fight over how much to reduce the debt, not how much to increase it. Reducing the debt gives the government more fiscal “dry powder” to use during future emergencies, without bashing Americans with high taxes and/or inflation.
You can think of the national debt like your credit card limit. The closer you are to that limit, the more you are paying each month in interest and also the closer you are to losing your automobile or home when an emergency hits. Instead of paying down its credit balance, Uncle Sam has been getting limit increases so it can put off payment. At some point, though, its creditors are going to say “no more.” That is unlikely to happen on any given, normal day but increasingly likely to occur precisely when the government will need the money the most, during a big crisis.
Where can the money come from to pay down the debt? Some could come from higher taxes, once the economy recovers, but most of it should come from slashing the administrative state. I don’t mean Social Security, I mean all those three-letter executive agencies that take and take and take without giving much of anything of value back. Specifically, both DOEs, Interior, Labor, the DEA, and the rotten parts of the CIA, FBI, NSA, and DOJ. Some four-letter government entities could be pared back or eliminated too, including FEMA, NASA, and the USPS, because competitive private enterprises already fulfill their missions more efficiently. Services that currently cost taxpayers, in other words, could become government revenue sources.
Some may think the federal government is too far gone to reform itself, but if it goes on a budget diet, a virtuous cycle will ensue, much like that (I can say from personal experience) enjoyed by a fat guy cutting back on carbs. A lower tax and regulatory burden will spur innovation, increase allocative efficiency, and create robust economic growth, which will swell tax receipts while reducing some expenditures like unemployment benefits and debt-interest payments.
The world will remain a dangerous place, but the further the nation is from its credit limit, the more effectively the government will be able to respond when, not if, something goes seriously awry.
Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research. He is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997.