Should We Actually Be Worried About the National Debt | Diving In

Gooday. Today I'm launching something new. Welcome to platypus economics.
I want to begin with a topic that's perfect for
what I want to do with this, because it's a
topic that shows exactly where economics is so useful and
why public debates about it so often goes so wrong.
The topic it's the federal budget deficit. Thrilling stuff, I know,
but hey, stay with me, because this is actually a
lovely example of what economics does at its best. A
lot of economics feels strange when you first hear it,
counter intuitive, a bit backwards, a bit like the platypus.
You see, when the British first saw a platypus, they
thought it was a hoax, a mammal that lays eggs
with a duckt bill and venom. Good luck with that, mate.
But the platypus wasn't nonsense. It just didn't fit the
categories that people expected. And the same thing happens in
economics all the time. People hear the word deficit and
think the answer is obvious. Deficits are bad, right, end
of story. But that's too simple. Sometimes deficits are smart,
sometimes they're dangerous, and the important question is not whether
a deficit exists, it's why it exists, whether we can
afford it, and whether it makes sense in the world
we're actually living in. So let me use the US
government's federal budget deficit to show you what I mean. First,
we'll start with the basics, some definitions, and a primer
on how you should think about scale. Second, i'll explain
why deficits are not inherently bad and sometimes they're exactly
the right policy. Then we'll get into the deficit that
America is running right now, why it's different, how we
got here, and why you should care, even if you're
not the sort of person who reads CBA reports for fun,
though I do recommend them. Let's start with the basics.
Our budget deficit is the gap between what the federal
government spends any year and what comes in through revenue,
mostly through taxes. Our government debts is the accumulation of
all the past deficits that we haven't paid off. People
often mix those up. Once you mix up the basic words,
the whole conversation can go off the rails. Now Here
is the first lesson in economics, The obvious moral story
is often the wrong analytic one. A lot of public
debate treats the deficit as if a household over spending
at the shops, as if the right answers simply spend
less balance the book's job done. But a government is
not exactly the same as a household. A government can
tax rows in financial markets, it manages recessions and wars,
and it sits inside a growing economy. So economists ask
a different question, not do we have a deficit? That's
too simple, not even how big is it? But instead
we ask how does it compare to our capacity to pay?
That's why deficits and debt are usually measured relative to GDP,
which is basically a country's income. Think of a mortgage.
A five hundred thousand dollars mortgage might be crushing for
one family and fine for another. The mortgage the debt
level itself tells you very little until you know about
people's income, the interest rate, and their overall ability to pay.
It's the same with national governments. Another thing economists like
to consider is how fast the economy is growing. If
our GDP is growing faster than the interest rate on
our debt, well it makes it a whole lot easier
to sustain that debt Over time. So the first thing
I ask you to do is resist the easy slogan. No,
deficits are not automatically good, but they're not automatically evil either.
They're at all And like any tool, the right question
is what problem is this the right solution for. Sometimes
running a big deficit is exactly what a responsible government
should do. Think about World War two, or the financial
crisis of two thousand and eight in two thousand and nine,
or the pandemic back in twenty twenty. In each case,
the government ran remarkably large deficits because the country faced
a genuine emergency. They were moments when the private sector
couldn't do the job on its own, and leaving things
on a business as usual setting would have meant failing
to meet the moment. During a war, the government has
to mobilize resources quickly. During a financial crisis, households pull back,
firms stop investing, banks get wobbly and demand and could
fall through the floor. During the pandemic, governments told people
to stay home, stay healthy, and they shut large chunks
of the economy down. If the public sector hadn't stepped in,
incomes would have collapsed even more dramatically. Now of course,
there are debates about how much government spending is too much,
how long it should last, whether politician should spend wisely.
Those are real debates, but the basic principle is sound
deficits during a crisis can save jobs, stabilize incomes, and
prevent a downturn from becoming a catastrophe. Which brings us
to the more interesting question. If deficits are useful in
a crisis, why is America running such a large deficit? Now?
And here's the genuinely important bit, and it's a story
the president never tells. The United States is currently running
a very large budget deficit, despite the fact we're not
World War nor a major economic and emergency. The latest
report from the Congressional Budget Office, they're the nerds who
get deep into this stuff, it said the deficit for
the twenty twenty five fiscal year was about one point
eight trillion dollars, which is roughly five point eight percent
of GDP. Now, that's a lovely example of why raw
numbers can mislead. Politicians love shouting trillion because it sounds terrifying,
and to be fair, a trillion is a ton of money.
But what really matters is that nearly six percent of
our national income is an unusually large deficit for an
economy operating in something like normal conditions. We're not really
in the midst of a wartime mobilization. This is not
the Great Recession, it's not the first terrible year of COVID.
What we have instead as a structural mismatch a government
that year after year is set up to spend significantly
more than it collects, and if that continues, debt rises.
Under that same outlook, government debt keeps climbing over the
next decade, and according to the CBO, it'll reach about
one hundred and twenty percent of a year's GDP in
ten years time. Again, don't hear that as a movie
trailer voiceover announcing imminent doom. Here it is a signal,
as a fact, as information. It means the US is
choosing a path in which our debt burden grows significantly
even before the next emergency arrives. A major consequence of
this is going to be rising interest costs. A federal
government right now, it's spending about a trillion dollars a
year on interest, and that interest bill is projected to
continue to rise sharply in the years ahead. So that's
money spent paying interest rather than buying anything new. Not
a bridge, not school, not funding a medical breakthrough, just interest.
And this is where economics helps. The popular conversation often
swings between two silly extremes. One side says deficits never matter.
The other says every deficit puts us on the verge
of national collapse. Both a nonsense. The serious view is this,
deficits are sometimes useful, sometimes harmful, and what really matters
is the context. And the context right now is that
America is borrowing a lot at a moment that either
is or should be a time and peace. We're borrowing
a lot at a moment that either is or should
be relatively normal economic conditions. Or, to say it more directly,
we're running big deficits when none of the usual rationales
for doing so apply. So how did we get here? Well,
it's not through one decision, it's through a lot of
the start with spending, A large and growing share of
the federal budget goes to Social Security, Medicare, and Medicate,
all valuable programs. Why are they taking a bigger chunk
of change, Well, that's mostly demographics and the rising cost
of healthcare. The population's aging. Baby boomers are retiring, people
are living longer, healthcare keeps climbing. None of that's scandalous.
In many ways, it reflects success. People living longer as
good news, but it also means promised spending rises over time.
Another big chunk of our spending goes towards defense, a
bit less than a trillion bucks a year. Then add
those interest payments, which keep rising with debt. So that's
one side of the ledger spending. Now the other side revenue.
Over several decades, the United States has over and again
cut taxes or failed to raise enough revenue to fully
pay for the commitments. It may think about the ray
ear of tax cuts, the bush ear At tax cuts,
the twenty seventeen Tax Cuts and Jobs Act. More recently,
the President insisted on calling his latest one the one
Big Beautiful Bill. And let's take a moment to consider
the tax cuts in that bill. There was a lot there,
several different cuts that affect a broad range of Americans.
But you can really think about two big buckets. In
the first bucket, you had populist proposals that were geared
primarily towards the working in middle class, things like no
taxes on tips, no tax on overtime, no taxes on
social security, election catnip ideas that wouldn't look out of
place at a Bernie Sanders rally. But these election gimmicks,
which the President talks about a lot, they're all temporary.
They're set to expire at the end of twenty twenty eight.
In the other bucket, we've got what you might call
country club tax cuts. This bucket primarily benefits the top
ten percent of Americans, and these cuts, well, guess what
they are extended permanently. Now, reasonable people can disagree about
the economic merits of any particular tax change. Here's the
bit that's not ideology, it's arithmetic. If you cut taxes,
you don't cut spending by the same amount, you increase
the deficit. Now you might reasonably ask, all right, but
why should I care? Three reasons, and they all connect
these big picture economic debates to your personal concerns. That's
something I hope will do a lot of with platypus economics.
So the first reason trade offs. Every extra dollar spent
on interest is a dollar that can't be spent elsewhere
on infrastructure, scientific research, public health schools, support for families,
whatever your priorities happen to be. As interest costs rise,
the room to do new things, or even to keep
doing old things shrinks. Second, fiscal space matters, and it
really matters in a crisis. If another recession hits, or
another pandemic, or some financial shock we can't yet see,
the US will want the ability to borrow and respond forcefully.
Today it still has that ability, but borrowing heavily in
good times means there's less room to do so in
bad times. It's a bit like owning a credit card.
Having a bit of extra borrowing capacity in reserves useful
when there's a genuine emergency. It's less useful if you've
already maxed out that credit card. Third, let's talk about
long run risk, and I want to be careful here.
Most economists don't think that the US is on the
brink of a Greek or Argentinean style fiscal crisis. The
United States borrows in its own currency. Treasury bonds remain
a foundational asset, and global finance, the dollar continues to
play a critical international role. These are all enormous advantages,
but these advantages are not an excuse for complacency. Trust
can erode institutional credibility. Matters, and countries get into trouble
not only by making one catastrophic mistake, but also by
normalizing years of unserious budgeting. And that's what worries me.
So here's the broader point. The federal deficit is exactly
the sort of issue that Platypus Economics is here for.
At first glance, it looks simple deficits bad end of story.
But once you slow down and ask a few of
the questions that economists pose compared to what, under what conditions,
who pays? What are we getting for it? The picture
gets clearer and more interesting. The lesson is not the
deficits are evil. The lesson is that context matters. Sometimes
borrowing is wise, sometimes it's reckless. And right now America
is on a fiscal path that deserves more honesty, more seriousness,
and a lot less slogan driven nonsense. That's what I
want this project to do, to create the space for
those conversations to take ideas that can feel intimidating, strange,
or counterintuitive, like a platypus, and show that once you
understand the logic, these ideas can help you see the
world more clearly. And economic ideas are not just useful
for the big picture stuff you read about in the paper,
like budgets, prices, or jobs. They're also useful in your life.
They can help you make better choices, those choices, both
big and small, the shape of good life. Where should
I live? Should I get married? Is it a good
time to go back to school? Heck? How should I
spend my afternoon? Economics has changed how I understand almost everything.
It's been a great gift. It's been a joy and
a blessing, and I'd like it to be the same
for you. So welcome to platypus economics.