There must be better ways to get the country out of debt than a Jubilee. What are they? N. Gail Spokane, WA
I promised in my last blog to take a look at ways, other than Jubilee, to pay down or get rid of the U.S. debt. There are other solutions, but each would be difficult to achieve and all come with a lot of pain.
- Just pay down the debt. That sounds simple enough and if you are in debt I would encourage you to spend less than you make and pay down your debt. However, if everyone who is in debt did this all at once, it would crash the economy. Our system is mostly dependent on consumer spending. When that drops off significantly, there is a drop in GDP. If people stop buying, businesses stop producing.
The same thing happens when the government stops overspending. Whenever the budget is in the black and debt is paid down, depression always follows. This happened five times in the 1800s and twice in the last century. The most recent episode was when Clinton balanced the budget from 1998 to 2001. We immediately had a recession in 2001 and some say it played a part in the ‘Great Recession’ of 2008. This only makes sense because a surplus represents money taken out of the economy.
Americans like to spend and their government appears incapable of not overspending. A good case can be made for each expenditure and cutting anything will negatively affect some group. For an interesting budgeting experience, go to https://www.federalbudgetchallenge.org At this site you get the opportunity to balance the federal budget. It is a fun and frustrating way to spend an hour or so. It will give you a feel for just how difficult balancing the budget can be.
Of course the other side of paying down the debt is to raise taxes. Good luck with that in today’s political environment.
- Grow the economy out of debt. Just stimulate the economy to grow so fast that the GDP will outstrip any increase in debt. This sounds like a great idea, except that it has rarely ever worked. Richard Vague in his book A Debt Jubilee recounts only 4 instances of this happening since 1950. Each of those were short lived and involved rare circumstances of inflation, a sudden export surge, or a huge increase in private sector debt. And all took place outside of the U.S.
This brings to mind the old “trickle down economic theory.” This was the idea that tax cuts for corporations and the wealthy would be invested and the benefits would trickle down to the common folk. These tax cuts were supposed to spur enough economic growth that, when taxed, would repay the initial tax cut. Of course that didn’t happen. All those cuts really did was to contribute to income inequality. Jubilee; The Day Everyone Was Free addresses that inequality.
- Use inflation to pay off debt. If the government were to simply print huge amounts of money to pay off its loans, the national debt would disappear. That is true, but so would the savings of middle America. Sure the dollar value of savings, CDs, and bonds would be the same, but the more dollars printed, the less each one is worth.
Massive printing of money would destroy the value of the dollar. We all experienced a bit of that recently when inflation was up to 8% in 2022. High inflation only benefits the rich. Their wealth is in assets such as buildings or stocks. While those assets retain their true worth, their value in dollars only goes up.
Hyperinflation has been a factor in the economies of lots of poorer countries; Indonesia had 13% yearly inflation from 1998 to 2010, Mexico had average of 20% inflation from 1995 to 2001. Then we have Venezuela, which had 9,000% inflation in 2019. Inflation is not good for the economy or the people who have to live with it.
- Ease debt by massive exports. Exports that exceed imports can grow GDP without increasing debt. Sales outside the country do not increase debt as sales within the country would do. There are a few countries that have benefited by surplus exports, most notably China.
This will probably not happen for the U.S. The U.S. has not run a trade surplus since 1975. Meanwhile, U.S. trade deficits have often been huge. In 2022, the U.S. bought almost 1 trillion dollars more than it sold.
A country that runs a trade surplus does so at the expense of other countries who will have trade deficits. This doesn’t make that country very popular and trade wars develop. We are seeing that in our country right now and our newly elected president has promised more of the same.
Sorry, there is no simple way out of our enormous national debt and the mountain of personal debt that Americans are carrying. Hmmm… all this makes a Jubilee, even with its problems, look pretty good.