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 01/31/2002
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Press Release (01/07/2002)
Press Release (01/31/2002)
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Americans Need Not Worry About Budget Deficits

For IMMEDIATE RELEASE: Thursday, January 31, 2002
Contact: Sonia Hoffman, (703) 912-5742 or shoffman@ipi.org
Dallas, TX: There’s no reason for Americans to panic about budget deficits – if the national debt stays 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 recent 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 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 than 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.
For further information on “Who’s Afraid of the National Debt?” by Larry Hunter and Steve Conover, please contact Sonia Hoffman at
(703) 912-5742 or shoffman@ipi.org.


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