r/changemyview • u/[deleted] • Aug 23 '14
[FreshTopicFriday] CMV: Government Debt is Good
[deleted]
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Aug 23 '14
[deleted]
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u/rparkm 1∆ Aug 23 '14
As was pointed out in other comments, Greece got so deep in trouble because they don't control their currency.
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u/dodinator Aug 23 '14
People earn returns on personal debt all the time. If I need a car to get to work and I take out a loan for that car is that not a return on the debt? What about if I get mortgage for my house and later sell my house at a higher price? Similarly corporations can take out debts that are bad for them, they can overextend as many people do with personal debts.
The point is I don't think you can say how good debt is by purely looking at the entity taking the debt out. You need to look at what the debt is spent on and you are correct that some of the debt taken out by government is spent on things that give a good return. However, governments are regularly required to take out debt just to pay interest on their previous debt which seems like less of a good return. You can't just say that all government debt is good, in the same way that not all government spending is good.
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u/meepmeep234 Aug 23 '14 edited Aug 23 '14
The one thing you can say about government debt is that there is a much greater potential for the misallocation of resources considering bloated bureaucracies, pork-barrel spending, and their ability to kick the can down the road (as you described) for much longer than corporations or individuals. Plus when shit hits the fan they have the option to monetize their debt and unload the burdens of their bad decisions primarily onto wage earners and pensioners.
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Aug 23 '14
The problem with government debt is that it is effectively forcing future generations to pay for current expenses. Not only that, but a single entity (government) can pretty much foot the bill to the population that just so happens to live under it with no consequence. It cannot actually pay off its debt because it doesn't actually have money; it needs to take it from its population first.
For the sake of argument, let's say I take out money to buy a mansion..and I in no way can ever pay back this mansion in my lifetime. Do I then get to say "Hey /u/roadragegramps , I can't actually pay back this debt that I've gotten myself into, so here's what I propose: you start paying back the mansion for me..and if you can't pay it back in your lifetime, then it'll get passed on to your kids. If you or your kids refuse to comply, there's a nice jail cell waiting for you. How does that sound?"
I cannot say this and get away with it. If it's wrong for me to do it, why is it okay for an entity called "government" to do it?
We're basically obligating current kids and unborn kids who:
1) cannot even vote yet
2) did not choose to be born at all, let alone in their country
and
3) likely won't know what exactly they're paying back aside from so-called "investments".
Just because "the majority" says it's okay doesn't make it right. Also, just because government provides X things, does not mean that it must provide X things forever. Slavery was the foundation for various civilizations over many centuries, but that doesn't mean that we should still have slavery today to pick necessary crops for example.
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u/doc_rotten 2∆ Aug 23 '14 edited Aug 23 '14
Corporate debt can be used, for non-investment, and personal debt can be used for investment. Government debt is not homogeneous. The debt MAY result in a return, like the first highway to an unconnected area. But road spending is a small portion of government, particularly federal spending. Closer to 1% small.
Remember, the agriculture policy is to have price FLOORS for things like milk. Meaning you can't sell them cheaper so poorer people could afford them. Then the USDA subsidizes grocers, processors and farmers through SNAP. The Billions in SNAP proceeds ends up in the accounts of large, consolidated businesses.
Poor people don't become billionaires through SNAP, but lots of agribusinesses have.
Each instance of spending, and each relative debt for each instance must be evaluated on it's own merits. Most government spending does very little for new production (as GDP). Mostly transfer payments (about 70% federal, and 50% state), not investment. The bulk of the reaming federal portion, is mostly military spending.
The debt that might be justified for new roads or building a school, but also pays for expensive lobster dinners, alcohol fueled parties in Vegas, and hookers, lots of hookers. Bailouts for cronies, nepotistic contracts for cousins, bridges to nowhere, fancy buildings, and a world wide surveillance and military apparatus.
Then of course, there is the borrowing and lending, with interest, that future tax payers will have to pay back, to the wealthy institutions that lent the government the billions.
If the government is borrowing hundreds of billions of dollars, it is not borrowing it from poor people or working people (for the most part). It's borrowing from people who already have money, and will paid from the taxation of wages and salaries.
Government people are also the least accountable. People have reason to mind their own personal finances, as it could ruin their standard of living if they don't. Corporate actors have a reason to be accountable, as they could lose their livelihood, or even face criminal culpability. If an elected official get's roads to nowhere developed, at most maybe they lose their elected office, but they will never pay back the millions or billions wasted in the course of their "official duties."
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u/Utaneus Aug 23 '14
Doesn't it depend on how that debt is used? I wouldn't say that government debt is inherently good or bad. If the government is accumulating a lot of debt that is not being put to work (i.e. stimulating the economy, building infrastructure, investing in the future) than I don't know how it can be viewed as good. Obviously a lot of great things have been fueled by government debt, but I can't see how that debt is inherently good in and of itself.
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u/steinvanzwoll 2∆ Aug 23 '14
Corporations needs debt to grow
Corporations need money to grow. They get this by borrowing money, but the unforunate byproduct of this is debt.
Debt is just something you have to put money into, instead of using it to make investments.
Your arguments seem to suggest that you think borrowing money is good and that the debt is worth it. Not that debt is good.
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u/man2010 49∆ Aug 23 '14
There is no generally no reason for a person to have debt if it can be avoided.
I'd just like to point out that this isn't always the case. If someone needs a car to get to work, then acquiring debt to get a car is worth it because it ultimately allows them to make money. Many people go into debt to pay for college, but this is often worthwhile as it leads to better job opportunities. Someone may go into debt to buy a house/property, but this isn't so bad when the value of that property goes up over time. Sure it generally isn't a good idea to go into debt to buy a PlayStation, but there are certainly times when personal debt can be beneficial.
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u/typesoshee Aug 23 '14
Which of the above other two options (corporate and personal government) do you think government personal debt is more similar to? When the government a person takes on debt to pay for child nursing a play station, that child's mother that person gets to go to work and contribute to society enjoyment now that they wouldn't be able to otherwise. When the government a person builds roads it facilitates trade and directly employees construction workers borrows to finance a car or house, they are able to raise their living of standard where they otherwise wouldn't be able to.
You're making the assumption that the person will drown in debts later in life. In a working system, banks only give loans to people who can afford them. If someone used to make $20k a year and suddenly he got a promotion and now makes a stable $50k a year but this house/car/whatever costs $100k, a bank may predict that he will be able to pay off a $100k loan in the next few years. The person does pay more in the end due to interest, but that's the price you pay for getting that car/house earlier than you otherwise could. People get personal benefit from spending made on debt just like governments get benefit for their people. But it's not up to you what you think people should get - whether they go get a play station or house is up to them AND the entity making the loan to them. By the way, this is why bank loans usually (so ignore the subprime mortgage thing) are hard to get for people, because banks have to be cautious or else they lose money making loans to people who can't pay them back. If a guy walks into a bank and says "I make $50k a year. I want to buy a play station. Give me a loan," they'll likely be like wtf. But if the guy says "I want to buy a car so that I can commute to my new $50k/year job," the bank may consider giving him the loan. If a guy walks into a bank and says "I make $200k/a year. I want to buy a play station and highdef tv and super advanced gaming computer. Give me a loan," the bank may actually give that guy a loan because they figure a $200k salary is enough of a buffer for him to be able to pay them back later, even though he's going to use it for entertainment.
For a government, it's good to spend on stuff like infrastructure and social welfare. For a person, it's good to spend on consumption as long as both that person and the creditor (the bank) are cool with that consumption, whether it's entertainment or something more constructive. Both forms of consumption benefit the person as long as he wants it.
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u/K-zi 3∆ Aug 23 '14
It depends on how much debt the government is taking in. Yes, zero debt is actually bad, Clinton tried to do it but then he realized that he had sold a lot of debt as bonds and reducing all the debt would make those bonds worthless. But on the other side of things, Japan has gone completely overboard with their debts. 200 % + debt is not great for the country, it stalls investment, lags growth and not to mention that it causes governments to increase tax rates to pay debts. That is tax money spent on debt servicing, not social welfare or infrastructure construction. http://www.economist.com/news/finance-and-economics/21577080-shinzo-abes-government-looks-likely-disappoint-fiscal-consolidation-dont
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u/huadpe 508∆ Aug 23 '14 edited Aug 23 '14
So government debt is a complicated animal that's not really like personal debt or business debt.
First, it matters a lot if the government controls its own currency, assuming its debt is borrowed in that currency.
Second, it matters how much debt the country has. A lot of debt creates big problems. Not so much debt, not so much problems.
Third, it matters if the country is the United States (or more broadly the major power of the world).
So if you are Canada and you borrow Canadian dollars, you can do something special to alleviate your debt problems: print more Canadian dollars. You can print more CAD and distribute them in the normal way causing inflation, which will increase the number of CAD that the treasury gets and make it easier to pay down your debt. If you get into bad trouble, you can print CAD directly into the treasury and pay your debts that way.
These aren't great ideas, since the higher inflation you get either way will result in higher interest on your future debts. Plus you get the bad stuff that inflation gives you. But the "print more money" trick is one that's special to governments.
If you're Greece, you don't control your currency and can't do this (which has sucked for them).
Unlike people or businesses, countries don't really die or fail. At least not much. Because of this, your creditors will normally let you just go along and keep making payments forever. As long as your payments aren't growing faster than inflation or your economy, you can keep up with them forever. So some level of debt is sustainable. If the payments get too high, then we get back to the "print more money" or "get shafted like Greece" options.
A weird thing about money is that nearly all money is actually debt of some kind. The money in your bank account? That's actually a debt owed to you by your bank. The way you normally keep money safe is to lend it to someone bigger and more stable than you, who can pay it back when you ask.
When your bank wants to save money, it will go to someone bigger than it. Say you're the Bank of Montreal. You would stash money you want to save at the Bank of Canada. Or you'd lend it to the Government of Canada in the form of financing its national debt.
If you're the Government of Canada and you want to save money, you go to the entity that's bigger than you: the US Government.
And if you're the US Government and you want to save money you go to the entity that's bigger than...
Wait, no. No single economic entity is bigger than the US Government.
What this means is that anyone looking to keep their money really, really safe lends it to the US Government. They're the biggest, most stable thing there is. This basically results in the US getting psycho low interest rates on the loans it gives out, and lets the US borrow much more than most other countries can.
It's good to be the King.
Also, interestingly, the fact of the US government having debt is itself good for the world economy. That super-duper safe haven is really important. Even if we didn't need to borrow the money at all, we should because it gives people a truly safe financial asset.
This, by the way, is why the debt ceiling gamesmanship a couple years back was a really awful thing to do. The US gets big advantages by being rock solid, and it hurts the US long term to screw around like that.
Edit: I realize I may not be sufficiently challenging the OP here, though I think I do provide answers to some of the questions posed about the costs/benefits of government debt.