How Does Government Debt Impact the Economy?

Classic GW
Classic GW

I’m seriously asking, because I have no idea. Economists all have very differing opinions here as well; some think it’s a huge deal, others think it is a small deal. Personally, I think it is not a small deal, in fact, I think it is of no impact on the overall economy. Here is why.

When was the last time you looked to borrow money? Think back to that moment, whether it was a house, a car, a business loan, student loan, whatever – was there any thought in your head along the lines of “well the country’s deficit right now is growing, so maybe it is not a good time for me to borrow.” I don’t know you, but I am inclined to think this thought was never processed by your brain. And I would venture to guess all the smart business types who are looking for capital to start and grow businesses don’t care about the government debt, because if they have demand for said business, then what does the national debt even matter? Sure, you can say government employees worry because if the fed doesn’t get control of its spending, they may start to cut back on government jobs. But does this matter in the private industry? I suppose it does actually, because if government workers lose their jobs, they’re spending less in the private industry, lessening the demand for private capital. On the contrary, the government can just print more money to keep paying for workers they’d otherwise have to let go, but then of course they are growing the debt and lessening confidence in the private sector. Ahh, but you’re now thinking that printing money will create inflation, however, this is not true as long as the demand for goods and services remains equal. Or if demand actually increases as money is printed, then you could see a situation where we get deflation, while printing currency. In the case of high demand, more people will work and pay taxes and the government debt won’t be such a big deal after all.

Did you follow any of that? No, because modern economics is stupid. It’s a confidence game more than real supply and demand. Go read Atlas Shrugged, drink a bottle of scotch, and set your doomsday clock accordingly.