DEFINITION: “National debt” is the overall amount of money owed by a nation state, such as the United States, to its creditors.
Thus, national debt is a type of “government debt,” which also comprises debt owed by lower-level governmental entities, such as states, counties, and municipalities.
“National debt” is also sometimes referred to as “public debt” or “sovereign debt.”
ETYMOLOGY: The word “debt” derives, via Middle English and Old French, from the Vulgar Latin substantive, debita (neuter plural), which is assumed to derive from the classical Latin substantive, dēbitum (neuter singular), meaning “a debt.”
Dēbitum, in turn, is connected to the past participle, dēbitus, of the verb dēbeo, dēbēre, meaning “to owe.”
The word “nation” derives, via Middle English and Middle French, from the Latin noun, nātio, nātiōnis, meaning “birth,” “tribe,” “race,” or “a people.”
Nātio is connected to the past participle, nātus, of the deponent verb, nascor, nasci, meaning “to be born.”
USAGE: One might be forgiven for thinking that the national debt was a simple, straightforward subject. Unfortunately, the fact that it is a political football introduces all sorts of complications.
The first thing to say is that the national debt is created by the government’s annual budget’s consistently running a deficit—which just means that the government spends more money in a year than it takes in.
Each budget deficit must be closed by the US government’s taking on debt. This may happen in a variety of ways, but the most-principled way is through the sale of government bonds on the open market.
Less-principled ways of closing the budget deficit each year include “borrowing” the money from other government funds (see below), or simply by printing money, backed by nothing—a dire contingency that has lately been resorted to and which is producing runaway inflation as of this writing (June of 2022).
The second thing to say about the US national debt is that it has been growing for a long time and that, over thepast few years, it has been growing at an astonishing rate. It now stands at well over $30 trillion, or 130 percent of GDP.
The third thing to say is that not everyone thinks this is a bad thing.
In general, conservative economists and politicians think it’s a bad thing, while progressive economists and politicians think that it is either inconsequential or else a good thing.
The fourth thing to say is that partisans point to different figures as representing the “real” size of the national debt.
Those progressives who retain some sensitivity on the subject will try to minimize the amount by redefining the national debt as the “publicly held debt.” This is the amount of the debt owed to non-governmental entities, calculated by excluding monies owed to special accounts, such as the Social Security and Medicare trust funds, that is used to pay for general expenditures.
However, this idea is misleading, in that the debt owed to Social Security and Medicare is still a part of the overall debt owed by the US government, and so ought to be accounted a part of the national debt.
At the other pole of economic and political thinking, some conservatives are not content with holding the line against the “publicly held debt” sleight-of-hand. They go on to insist that the “real” national debt ought to include “unfunded liabilities.”
“Unfunded liabilities” are implicit promises made by the government to continue non-discretionary spending in the areas of pensions (Social Security) and healthcare (Medicare) at certain levels, even though no taxation mechanism to offset these liabilities has been implemented by Congress.
These conservatives estimate that the magnitude of such unfunded liabilities over the remainder of this century is on the order of $100 trillion.
According to these critics, then, the “real” national debt of the US stands today at something on the order of $130 trillion.
How is it possible that conservatives and progressives have such different views of the national debt?
In a nutshell, progressives are Keynesians, who believe that “deficit spending” (which is what creates national debt) is a good thing for the economy, while conservatives subscribe to Austrian economics and similar theories, which view deficit spending as the chief engine driving government growth and interference with the free market, which they view as bad for the economy.
Moreover, progressives tend to back Modern Monetary Theory, which teaches that printing money will not cause inflation so long as a sovereign nation controls its own currency, whereas conservatives are convinced that, sooner or later, printing money must lead to runaway inflation and debasement of the currency.
As of this writing, it seems safe to say that Modern Monetary Theory has now been tested and found to be false.