John Oliver took on a perennial hot potato in American politics on Sunday evening: the US national debt, also known as “the world’s most boring $28tn,” he joked. The debt has long been “a complete obsession in this country” – just look at New York’s upwards-counting debt clock – and while it’s “undeniably big” and poised to expand with the trillions for coronavirus stimulus packages and the infrastructure plans unveiled by Joe Biden last week, the debt isn’t quite as ominous as conservative fearmongers would have people believe.
“For decades in political ads, the debt has been portrayed as a burden that we’re placing on future generations,” the Last Week Tonight host explained. The general argument is that the federal government is “running up their credit card and that one day, the bill is going to come due” and screw over younger generations, usually represented in ads by crying babies and exhausted toddlers.
Such ads, especially ones that suggest the debt is owed to China, are “wildly misleading”, Oliver said, as the majority of public debt is owned by the American investors.
And “while the debt is often talked about as something that we’re running up with new spending, the truth is, before the pandemic hit, most of our debt was the result of long, steady growth in programs that we long ago committed to, like Medicare and other entitlements,” he explained.
In other words, brick-and-mortar programs for government spending, which underscored an important point: “Going into debt can actually be a good investment for the country,” Oliver said. “Essentially, as economists will tell you, the key question is: are you spending money on the right things?”
The host then offered a quick lesson on American debt politics. “Republicans love to argue that government should be run like a business, but tend to conveniently forget that some extremely valuable companies got that way in part because they had long periods where they spent a shitload more than they took in,” he explained.
As president, Ronald Reagan was the self-styled hero of fiscal restraint, “but that story just doesn’t line up to reality,” said Oliver. “He wasn’t really promising to stop spending money so much as promising not to spend it on certain people.” Reagan advanced the racist “welfare queen” stereotype that black people abused the welfare system, justifying his cuts to food stamps and Medicaid; meanwhile, increased military spending and tax cuts tripled the national debt.
That debt exploded under George W Bush, who also cut taxes while overseeing the expensive War on Terror. But Republicans “didn’t seem to care” until Obama took office, Oliver said – outrage which subsided when Trump ballooned the national debt through tax cuts for the wealthy, which will cost the government $1.9tn over a 10-year period.
“Even if you put all of that bad-faith hypocrisy aside, we are still left with the key question: how much debt is too much?” Oliver continued. “And the interesting answer to that is, nobody really knows.”
Last June, largely because of increased borrowing for the first round of Covid stimulus bills, the US national debt exceeded GDP, formerly seen by many economists as a hard red line. Yet interest rates have continued at historic lows, confounding even economic experts; “We have no explanation,” said Olivier Blanchard, former chief economist of the International Monetary Fund, at a fiscal summit in 2019.
The Congressional Budget Office has now said that the debt-to-GDP ratio has “no set tipping point” at which a crisis “becomes likely or imminent”.
The phenomenon has, on a very basic level, changed the way economists think about debt, with a new working assumption that as long as the economy grows at a rate greater than the interest rates, government will come out ahead.
“There is a good-faith debate to be had about how to handle our national debt over the long term,” Oliver summarized. “But right now, most economists actually agree that with interest rates at historic lows, the question shouldn’t really be ‘How much debt are we taking on?’ as much as ‘What is the value of what we are getting for it in return?’”
There are dumb financial decisions to make, he added, like tax cuts for the wealthy. “And if it turns out that inflation or interest rates do start to rise, we should absolutely start cutting deficits, although not by cutting government programs that people need, but by taxing people who can afford it.
“Look, no one credible is saying that deficits don’t matter or that we should borrow as if the sky is the limit,” he concluded. “What they are saying is the debate shouldn’t be about whether debt is good or bad; it should be about whether the investments that we are making are worth it or not.
“And if you are still worried about debt because you’ve been told that you are burdening your children and children’s children’s future, well I actually have some good news for you,” he added before signing off with with a scare-tactic style PSA starring children against fear of the “stupid debt clock”.
