How Important is it to Address Our National Debt?
EPISODE 4: Former Speaker of the House Paul Ryan and Berkeley economist Barry Eichengreen join the governors to discuss good vs. bad debt, what we can and should do to address it and the potential consequences of failing to act.
The United States owes its debtors more than $30 trillion. To dig into how the U.S. got here and what’s at stake, the governors call on Paul Ryan, former Speaker of the U.S. House of Representatives, and Barry Eichengreen, George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley.
NOTE: We are pleased to welcome Ryan and former U.S. Sen. Heidi Heitkamp (D-ND) to campus on October 24 for a conversation about how institutions and communities can navigate differences of opinion. For more information about that event, click here.
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“There are good debts, and bad debt”
Eichengreen, who has written several books including In Defense of Public Debt, started off by making an important clarification: “there are good debts, and bad debt.”
“There are good reasons to incur debt, public debt, and they’re not so good reasons,” Eichengreen said. “So, chronic overspending on low priority programs is not a good thing. On the other hand, there are all hands-on deck emergencies. When the government has to mobilize all available resources beyond what can be mobilized in the short run through taxation and spending that is financed out of current revenues.”
Eichengreen pointed to war as one example of an all-hands-on-deck emergency, noting that the debt spiked during the Civil War, World War I and World War II. Two other examples? National security emergencies and public health crises like the COVID-19 pandemic.
“Some electoral systems are more conducive to this kind of intelligent discussion and compromise over priorities than others.”
As to how he would identify what “chronic overspending low priority programs” could be cut – as one person’s low priority may be someone else’s top priority – Eichengreen noted that some of our challenges may be structural.
“Some electoral systems are more conducive to this kind of intelligent discussion and compromise over priorities than others,” he said. “Germany has a very low public debt, partly because it has a history that makes it phobic about inflation, but partly because they have a political system that delivers broad based centrist coalition governments with a bunch of different parties represented at the same time, who they’re always together in one room having to agree on policy.”
“We’re the healthiest looking horse in the glue factory right now. I don’t think we’re at risk today, but we’re playing with fire.”
Ryan touched on how the national debt poses risks to the country’s reserve currency status and ultimately the ability to afford its “social contact” – health and retirement security for all Americans and a safety net for the poor through Social Security, Medicare and Medicaid.
But who exactly determines that the dollar is no longer the currency of record for the world?
“The markets say it… central banks say it,” Ryan said. “They’re going to demand it as a medium to exchange some other currency because it’s more reliable because the Americans have mismanaged it. And I don’t expect this currency, this dollar, to be a reliable store of value anymore. And so that’s why I always tell people we’re the healthiest looking horse in the glue factory right now. I don’t think we’re at risk today, but we’re playing with fire. And with digital currencies coming down the pike, with digital payment rails coming down pike, it’s going to move a lot faster.”
“We can do it… These problems can be fixed with policies”
Ryan, who discussed becoming Speaker in 2015 (“I wasn’t looking for the job, actually. I was kind of drafted into it… it’s a great way to go into a job like that”) acknowledged “it’s really hard to get people to vote for this sort of stuff.”
“You can have health and retirement security in America, for all Americans. You can have a great vibrant safety net for the poor and get this debt under control. We can do it,” Ryan told the Governors. “These problems can be fixed with policies. We don’t have the politics or anywhere close to it today to get there, that’s the problem we have right now.”
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