Rename “National Debt” to “Invested Capital”
I’ve had this here on my mind for a while now. I always hear all these problems about the $10 Trillion national debt, and I just wonder if maybe a rose by any name wouldn’t smell as sweet. So let me put forth my argument that the National Debt is good and should be grown as quick as possible. Hopefully my thinking isn’t completely worthless.
If you’ve ever seen a good job of slight of hand street magic, you’ll understand the concept. You point in one direction, and then do some fancy finger-work in the other direction. Whether intentionally or not, the American public is watching some impressive slight of hand in relation to our national debt. We are looking at the $10 Trillion and thinking wow! Eventually, we’re going to find ourselves staring at $43 Trillion in debt, and unlike a good street magician, we won’t feel the desire to clap.
To better explain the situation, I’ll provide a nice and simple analogy. Imagine the United States as the town bank. I’ll also provide a few numbers, as a few as possible, and I apologize in advance the reading is too arduous.
Now, let’s say you go to the bank. You stand at the counter, hand over a Twenty Dollar bill, and watch as the process starts working.
That twenty is slipped into a drawer, and an account number is assigned. The bank teller punches some buttons on her computer, and the bank records a credit to their liability for twenty dollars. Then they credit your account twenty dollars. In simplistic terms, the bank now owes you twenty dollars. You could even call it a debt. With this bank representing America, the analogy then says we just added twenty dollars to the National Debt.
It’s not quite that simple though. Though it is debt, the better word would is liability. You see, the bank doesn’t just leave that twenty dollar bill in the draw, it’s not a hindrance to the bank’s business. Far from it. It takes that twenty and loans it to somebody else. The bank pays you 5% to hold onto the money, and charges 10% for the loan. They’re earning a free 5% . Free money. American Capitalism at it’s best.
With this very simple analogy I’ll trust you understand then why banks are nice to customers who deposit their weekly pay checks. The more money they take in as liability/debt, the more profit they can in then earn.
The United States is a bank. We take in money from people all over the globe and pay between 2 and 5% interest. If we invest that money and earn a 6% return on investment, then we should actually turn a profit by running a deficit. Much as a bank seeks out as many depositors as possible, the American Government should seek out as many depositors as possible.
Thus, that $10 Trillion in debt, far from being a bad thing, is actually a good thing. It is capital invested in the US Government. Rather than letting that money sit someplace, that money is actively driving the US Economy.
Quick Example: Tens of thousands of students, if not more, take out student loans. Why? Because borrowed money invested in oneself nearly always results in higher annual earnings for the rest of their life. (Borrowing money to buy a TV= Bad, Borrowing money to invest in oneself = Good)
Broader Example:
If we accept a deposit from China at 3% interest, use that money to put some kids through college, and each of them increase their lifetime earnings by 10,000 a year, we can add about $16 to our economy for every dollar deposited. We pay off the debt with the increase in tax revenue, and have an extra 2 dollars left over as profit.
If that $10 Trillion is actually Invested Capital, we’re making a profit on every dollar of that debt. This is very good. I would argue, that all of the National Debt IS Invested Capital. Whether it is guns or butter, somewhere a US Congressman decided the investment was worth the interest. (Whether our Congressmen are competent is a different matter entirely.)
The key thing to remember, is that we NEED to invest that money at a profit earning percent. If we promise to pay 5% interest on a 30 year bond, and waste that money, there won’t be any increased tax revenue to cover the liability. We must, as a Nation, be very careful that when we spend money, we always spend money with the eye of an investor.
Which brings us to what’s going on with the other hand.
While everyone is looking at the $10 Trillion in economy-driving deposits, $42 Trillion in unfunded debts are rushing up on us. Social Security, Medicare A, B and D, however well intentioned, aren’t investments. If someone is retired, paying them cash or giving them free medicine doesn’t grow the economy.
I am not saying these programs are bad. Caring for the elderly and infirm is certainly the morally right thing to do. But the elderly and the infirmed won’t thank us for our good intentions if there isn’t money in the bank. At present, every single American, regardless of age owes about $138,000 to these programs. How we handle this debt is the Great Question of the day.
Rather than fearing the smaller $10 Trillion and ignoring the $42 Trillion, we need to embrace the first debt as the only way to drive our economy forward fast enough to meet the obligations of the far larger second one.
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