The Truth Revealed About Debt and Deficits

Spending and debt are necessary in any economy. The key question is which sector should carry the burden: families and businesses, or the government?

April 18, 2012

It’s hard to open a newspaper or turn on the TV without being bombarded with narratives suggesting that fiscal policy didn’t work and that we therefore need discipline in the form of balanced budget amendments and debt limits. Even those who see themselves as moderates on the issue are embracing a commitment to “eventually” slash deficit spending once recovery gets underway.

But most of this talk arises from a fundamental misunderstanding about the way debt and deficits actually operate.

Private v. Public Debt

When people talk about reducing the deficit, the message is that the U.S. government is running out of money. Virtually everyone in Washington accepts this idea—from the progressive think tanks to the nuttiest free marketeers; from the politicians to NPR’s reporters; from Pete Peterson’s hedge fund cronies to organized labor. All present a unified front against budget deficits—particularly those that supposedly result from “entitlements.”

They all warn we have to cut excessive debt. But what kind of debt? Public or private? And excessive in relation to what? Time? Some threshold?  READ MORE