National Debt a Tool for Wealth Creation

When discussing economics, the government’s budget is often compared to a household’s. That thinking is evident in Sidney James’ letter, “Congress must be fiscally responsible.” But is that line of thought correct?

Unlike a household, the United States is 242 years old. During those 242 years, there has been only one year in which the government wasn’t in debt. On Jan. 1, 1835, President Andrew Jackson paid off the national debt for the first and only time in American history. By 1836, we were in debt again.

This isn’t a bad thing. In a financial relationship between two parties, assets and liabilities sum to zero. In other words, when the government issues a bond, it’s taking on a liability (debt). The inverse also is true. When the government issues a bond, someone else is acquiring an asset (savings). That investor is making the good bet that the U.S. will pay him or her back.

Why is that a good bet? There are at least two reasons:

First, America has a great track record. In fact, the U.S. has never defaulted (except for temporary default due to a clerical error back in 1789. Seriously, that actually happened).

Second, the dollar. We have the world’s reserve currency. It’s hard to default on debt when your country issues the world’s reserve currency.

When it comes to debt, worry less that it exists. Debt, used wisely, is actually a tool for wealth creation. Investments in research, infrastructure, education, and a clean environment ultimately pay for themselves. Instead of worrying, be frustrated that debt exists for the wrong reasons — like endless wars, tax cuts for the rich, and corporate welfare. That’s how the prosperity of the many is sacrificed for the largesse of a few (and why wealth inequality is so high).

Originally printed on as a letter to the editor of the Richmond Times-Dispatch. Click here to view.