The Real Cost of Public Debt Is Not a Dollar Amount; It’s Freedom by Jonathan W. Plante American Institute for Economic Research
As the United States national debt soars above $29 trillion, the Congressional Budget Office (CBO) warns that Congress will run out of cash by the fall unless the debt ceiling is raised. Talk about debt has always been a contentious issue in policy. Recently after the pandemic, however, such talk is becoming more rampant in academia. Indeed, several academics have written books, directed at the general public, arguing that the amount of debt needn’t be of concern.
For example, last year Stephanie Kelton published a book titled The Deficit Myth, arguing for the use of monetary policy to offset the costs of debt for the purposes of macroeconomic stability. Moreover, this fall a book titled In Defense of Public Debt will be published that makes a different, yet similar conclusion as Kelton’s book: public debts provide a means for macroeconomic stability—in this case, amid times of emergencies and crises.
The model underlying macroeconomic stability is an aggregative framework that sums up all the costs and income/output for a given economy. Using this type of model, some macroeconomists argue that (internally held) public debts are of no concern in the aggregate, due to the law of large numbers: the costs of public debt are canceled out by (predicted) benefits.
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Does this sound strange? Is an aggregate model truly appropriate for a world of heterogeneous people? Among others, Nobel Laureate in Economics Friedrich Hayek said that one of the downfalls to the macroeconomic framework is that it hides the differences among microeconomic data—which, in the case of public debt, are the costs imposed on people.
Some estimates have calculated the cost of the debt per person to be $87,000—an exorbitant amount. To be sure, this figure does not consider that individuals in younger generations will likely not receive Social Security or Medicare, due to the funding running out and the population rising. If such phenomena occur, the cost to these individuals in these generations will be higher. Additionally, there is even a more important cost when we seriously take the claim that, in the aggregate, the costs of public debt are canceled out by the gains from public debt.
Namely, such canceling out means that some people receive a net benefit from public debt, while others receive a net cost. In other words, costs are not spread equally among people, ever, at any point in time. Seeing public debt in this way, we realize it is a means of wealth redistribution for whom the government favors—the elite—at the expense of the others—the masses. Such an argument has recently borne out with empirical proof.
It is this redistribution that I find to be the real cost of public debt. This redistribution is forced on people outside of the elite—some of whom are not yet born, and, thus, have not consented to this redistribution. As such, the real cost, due to force, is a loss of liberty—a cost which may be unmeasurable. In what follows, I expand on this argument.
