Is there a reason the federal government wouldn’t want to start paying down the deficit? What are the negatives to having more money coming in than going out?
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The US government borrows at an effectively negative interest rate, so it actually makes sense to finance big spending projects and pay out less money over a longer period. Additionally, there’s not really any incentive for the US to save money each year, as doing so means either higher taxes or less spending, and no one can agree on those things. Anything the US could do with that saved money can be more easily accomplished by just borrowing the money now.
The US government borrows at an effectively negative interest rate, so it actually makes sense to finance big spending projects and pay out less money over a longer period. Additionally, there’s not really any incentive for the US to save money each year, as doing so means either higher taxes or less spending, and no one can agree on those things. Anything the US could do with that saved money can be more easily accomplished by just borrowing the money now.
The US government borrows at an effectively negative interest rate, so it actually makes sense to finance big spending projects and pay out less money over a longer period. Additionally, there’s not really any incentive for the US to save money each year, as doing so means either higher taxes or less spending, and no one can agree on those things. Anything the US could do with that saved money can be more easily accomplished by just borrowing the money now.
Government budgets don’t work the same way as household budgets, or even the same way as business budgets.
Deficits are not (necessarily) a bad thing. Neither are they necessarily a good thing, of course.
Governments don’t really care about “how much money they have right now” in the way that a person might care about their bank account. First, because they care about long-term flows rather than a moment in time; second, because they don’t treat money as a resource in the same way.
To governments, money flow is more about *promises* and *actions* (that fulfill promises).
A government deficit means that the government is, by a specific metric, creating more promises than it’s fulfilling at that moment.
But this is generally fine, because a (healthy) government’s ability to fulfill promises grows over time. There’s a bunch of reasons for this, the simplest of which is that human productivity grows over time.
Imagine you’re a carpenter. You know that you can build more tables every week, because you have a magic table-making-gnome that continually gets better at building tables.
You promise someone to make them 10 tables over a week. The next week, you make and deliver 10 tables, and promise to make them 11 tables. The week after that, you deliver 11 tables, and promise to make them 12 tables.
You’re running a “deficit” of one table; each week, you are making one less table than you’re promising. But since the promises are for the future, you’re fine – and will continue to be fine for as long as your table-making keeps getting better over time.
Government budgets don’t work the same way as household budgets, or even the same way as business budgets.
Deficits are not (necessarily) a bad thing. Neither are they necessarily a good thing, of course.
Governments don’t really care about “how much money they have right now” in the way that a person might care about their bank account. First, because they care about long-term flows rather than a moment in time; second, because they don’t treat money as a resource in the same way.
To governments, money flow is more about *promises* and *actions* (that fulfill promises).
A government deficit means that the government is, by a specific metric, creating more promises than it’s fulfilling at that moment.
But this is generally fine, because a (healthy) government’s ability to fulfill promises grows over time. There’s a bunch of reasons for this, the simplest of which is that human productivity grows over time.
Imagine you’re a carpenter. You know that you can build more tables every week, because you have a magic table-making-gnome that continually gets better at building tables.
You promise someone to make them 10 tables over a week. The next week, you make and deliver 10 tables, and promise to make them 11 tables. The week after that, you deliver 11 tables, and promise to make them 12 tables.
You’re running a “deficit” of one table; each week, you are making one less table than you’re promising. But since the promises are for the future, you’re fine – and will continue to be fine for as long as your table-making keeps getting better over time.
Government budgets don’t work the same way as household budgets, or even the same way as business budgets.
Deficits are not (necessarily) a bad thing. Neither are they necessarily a good thing, of course.
Governments don’t really care about “how much money they have right now” in the way that a person might care about their bank account. First, because they care about long-term flows rather than a moment in time; second, because they don’t treat money as a resource in the same way.
To governments, money flow is more about *promises* and *actions* (that fulfill promises).
A government deficit means that the government is, by a specific metric, creating more promises than it’s fulfilling at that moment.
But this is generally fine, because a (healthy) government’s ability to fulfill promises grows over time. There’s a bunch of reasons for this, the simplest of which is that human productivity grows over time.
Imagine you’re a carpenter. You know that you can build more tables every week, because you have a magic table-making-gnome that continually gets better at building tables.
You promise someone to make them 10 tables over a week. The next week, you make and deliver 10 tables, and promise to make them 11 tables. The week after that, you deliver 11 tables, and promise to make them 12 tables.
You’re running a “deficit” of one table; each week, you are making one less table than you’re promising. But since the promises are for the future, you’re fine – and will continue to be fine for as long as your table-making keeps getting better over time.
I think you are confusing deficit and debt.
Deficit is the the money going out being greater than the money coming in (frequently over a whole year when talking about the government). It is a budget term. You don’t “pay down” the deficit. You spend less or bring more money in. You can reduce or (as the government prefers) increase the deficit.
The debt is the the accumulation of deficit over time. This is how much you actually owe.
If you are growing then a moderate debt isn’t the end of the world. But it you spend recklessly (like our politicians on both sides of the aisle–one gladly spends your money, and the other says they won’t but do anyways) then things will become untenable. One metric to determine when this becomes untenable is to look at the ratio of debt to GDP. You have to be careful here, because the government loves to redefine terms to hide stuff they don’t want you to see (like the unemployment rate and inflation indexes that are reported all over the place). To a normal person, cutting funding to something means you reduce the amount you are spending on it. To the government cutting funding actually means reducing the rate of increase in funding.
I think you are confusing deficit and debt.
Deficit is the the money going out being greater than the money coming in (frequently over a whole year when talking about the government). It is a budget term. You don’t “pay down” the deficit. You spend less or bring more money in. You can reduce or (as the government prefers) increase the deficit.
The debt is the the accumulation of deficit over time. This is how much you actually owe.
If you are growing then a moderate debt isn’t the end of the world. But it you spend recklessly (like our politicians on both sides of the aisle–one gladly spends your money, and the other says they won’t but do anyways) then things will become untenable. One metric to determine when this becomes untenable is to look at the ratio of debt to GDP. You have to be careful here, because the government loves to redefine terms to hide stuff they don’t want you to see (like the unemployment rate and inflation indexes that are reported all over the place). To a normal person, cutting funding to something means you reduce the amount you are spending on it. To the government cutting funding actually means reducing the rate of increase in funding.
I think you are confusing deficit and debt.
Deficit is the the money going out being greater than the money coming in (frequently over a whole year when talking about the government). It is a budget term. You don’t “pay down” the deficit. You spend less or bring more money in. You can reduce or (as the government prefers) increase the deficit.
The debt is the the accumulation of deficit over time. This is how much you actually owe.
If you are growing then a moderate debt isn’t the end of the world. But it you spend recklessly (like our politicians on both sides of the aisle–one gladly spends your money, and the other says they won’t but do anyways) then things will become untenable. One metric to determine when this becomes untenable is to look at the ratio of debt to GDP. You have to be careful here, because the government loves to redefine terms to hide stuff they don’t want you to see (like the unemployment rate and inflation indexes that are reported all over the place). To a normal person, cutting funding to something means you reduce the amount you are spending on it. To the government cutting funding actually means reducing the rate of increase in funding.
Money spent on the national debt only serves the loose purpose of faith that it will get paid.
The USA is so wealthy that there is no lack of faith that it will pay back the loan, and so powerful that you don’t care about money if they were to fail.
It is similar to how it’s advised to not have a lot of cash or inventory. You want just enough to do your business, the rest is costing you to have a place to store it.
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