IPI Publication Press Release
IPI Policy Report - # 159
Related Publication Title:
Who’s Afraid of the National Debt?
The Virtues of Borrowing as a Tool of National Greatness
Released by Lawrence A. Hunter, Steve Conover on 01/07/2002
IPI Policy Report - # 159
Related Publication Title:
Who’s Afraid of the National Debt?
The Virtues of Borrowing as a Tool of National Greatness
Released by Lawrence A. Hunter, Steve Conover on 01/07/2002
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Contact: Sonia Hoffman, (703) 912-5742 or shoffman@ipi.orgDallas, TX: There’s no reason for Americans to be debt-phobic if the national debt stays right where it is – at about one-third of national income. In fact, prudently managing debt can be better financially for our economy than balancing the budget, according to a new study released by the Institute for Policy Innovation (IPI).
“Debt is intrinsically neither good nor bad,” says Larry Hunter, co-author of “Who’s Afraid of the National Debt?” and Chief Economist at Empower America. “Sound borrowing generally produces steady long-term growth, greater security, and a higher standard of living than does rushing to pay off the debt at the expense of other more beneficial endeavors.”
For example, if you could borrow money at 6 percent interest and then invest it for a 10 percent return, wouldn’t you do it? It’s no different for the government. In fact, it’s better.
Unlike with individuals or corporations, financial backers like to lend to the U.S. government at the lowest of interest rates because there is little fear that the government will go out of business, because the government does not have to retire principle, and because the government can continuously roll over its debt.
Why’s there a problem then, especially when the United States is more than capable of servicing a debt within one-third of its national income?
In part, conservatives and liberals, both eager to solve the erroneous “debt problem,” don’t understand that retiring the national debt does not eliminate interest burden, increase saving, or lower interest rates.
To ensure prudent debt servicing, all Congress would need to do would be to adopt procedures requiring tax rate reductions when the debt-to-GDP ratio falls below bounds (unless increased government spending is demonstrably more productive that leaving the resources in the private sector).
Adds co-author Steve Conover: “A visionary use of public debt would be to completely overhaul the federal tax system and fundamentally restructure Social Security as a personal investment program.”
It’s an ambitious goal, but it’s the economically rational thing to do.
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