In a letter to Business Outlook on April 8, to defend the zombie myth that federal finances must be managed just like a household, the Journal trotted out the old saw that “Some day, the piper must be paid.”
That old saw raises the questions: Who is the piper? Who will pay that piper and when? As the old saw is vague about the subject, we presume that it refers to national debt, which is an accumulation of federal deficits. Contrary to conventional wisdom, I have claimed that current federal deficits are not large enough.
Because the national debt is held by the non-government sector as assets called U.S. Treasury securities, the piper must be the holders of the treasuries, mostly institutions and rich people, and the payer must be the federal government. The payments made are documented daily by the Treasury in its “Daily Treasury Statement.”
Looking at the statement for the last day of FY 2012 one sees that $67.4 trillion in public debt was redeemed, $68.7 trillion debt was issued, and $215 billion interest was paid over the year. This happens to the tune of over $250 billion per day. The piper gets paid every day as the public debt gets rolled over and necessarily increased. Our government can always meet its financial commitments.
Unlike a private mortgage that must be paid off, the national debt has no due date. As the nation’s economy has grown, that old debt from World War II has remained as an ever-decreasing fraction of the total. Public debt is the only source of net private-sector savings; it doesn’t make sense to pay it off under usual circumstances.
Rather than concern ourselves with numbers on a spread sheet, we should look at what really matters, that is the real economy. Businesses downsized to make profits on sales to those who are employed. Demand is not sufficient for businesses, as a whole, to hire up. So, we are stuck with high unemployment and pitifully slow growth. When the private sector can’t, government purchases from the private sector can support the demand needed for full employment.
Of course, deficits can be too large, but not until full employment is reached. Our government should make sure that all the nation’s productive resources are put to use, not cut them off as it is doing now. Then we would see GDP grow and both unemployment and deficits decline.
Rather than complaining about small, failed enterprises like Solyndra, the private sector should look to government for the high-risk R&D needed for future industry.