It isn’t that the national debt/savings doesn’t matter. It just doesn’t matter in the way most people think.

I completely agree that the national budget is not the same as a household budget.

Every dollar that has been created and spent into the economy and not taxed back out of the economy still resides in the economy. It is the dollars that are used on a daily basis and those which make up the savings of the non-fed sector. The amount of dollars in the economy has grown over time with continual deficits. We need some amount for transactions and to satisfy the desire to save. If we had always had a balanced budget, there would be no residual savings in the economy.

The political definition of a “balanced budget” simply means that in a given budgetary year, inflows to Treasury = outflows from Treasury. I completely understand that “the economy” is much broader than that, but that’s a bit of a digression from my original point.

While we have had a policy inflation target, a growing population, and a growing economy, the number of dollars has needed to grow as well to accommodate.

Obviously.

Are there limits? Sure. Why not give everyone a million? Because aggregate demand would likely increase beyond productive capacity and resource constraints which would likely lead to higher than target inflation. At the end of the day is is about real goods and resources. Dollars are just how we keep score.

Quite right.

Removing dollars from the economy (i.e. reducing the national debt) typically leads to high unemployment and results in recession or depression. Taxation creates unemployment with too little spending creates unemployment.

Well, although that scenario did occur in 1937, the reverse happened in the late 1990s.

At any rate. my POINT was that deficits matter, which the original poster seemed not to agree with, but you seem to. So, I am not sure if you are agreeing with she or I.

The question that I always ask (and have not gotten an answer to) is How many dollars SHOULD we have in the economy if not the current amount? If the answer is less, then why? To what end? Based on what analysis? For what desired economic outcome?

The answer to those questions get you a Nobel Prize. However, the nation has prospered at levels far less than the current debt to GDP ratio, and right now, we are not prospering. So that argument can get turned on its head. Are the current mundane levels of GDP we’ve seen since the meltdown CAUSED by the high debt/GDP levels? If they were lowered, would the economy get better or worse?

Written by

Data Driven Econophile. Muslim, USA born. Been “woke” 2x: 1st, when I realized the world isn’t fair; 2nd, when I realized the “woke” people are full of shit.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store