ECONOMICS YOU THOUGHT YOU KNEW

From NPR's All Things Considered, a look back on that brief window in 2000 when erasing the US debt appeared to be imminently on the horizon:

What If We Paid Off The Debt? The Secret Government Report

If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world.

"It was a huge issue.. for not just the U.S. economy, but the global economy," says Diane Lim Rogers, an economist in the Clinton administration.

The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds.

But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.

Banks buy hundreds of billions of dollars' worth, because they're a safe place to park money.

Mortgage rates are tied to the interest rate on U.S. treasury bonds.

The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track.

And

In the end, Seligman concluded it was a good idea to pay down the debt — but not to pay it off entirely.

"There's such a thing as too much debt," he says. "But also such a thing, perhaps, as too little."

More here.

And just like that, out the window go a whole lot of "common sense" attitudes about money and the federal government, chiefly, the widespread comparison between your family's household budget and the government budget. That is, comparing federal spending and debt management to what an individual family does with its money just doesn't work. Your family's financial fate primarily affects you and your family--you go bankrupt, and it really doesn't affect anybody else; win the lottery, and you, and only you, get rich. Not so with the federal government. Indeed, if you think of a household as just a few people, then the federal government is something of a force of nature, a god on high Olympus, making the rain come or the ground quake. It's just so enormously big, dealing with money on a scale that challenges the imagination, and so profoundly intertwined not only with our economy but with the entire world's economy, that to even contemplate its removal from the economic picture is to go to places even Karl Marx feared to tread.

It is, indeed, counter-intuitive to think that running massive deficits can sometimes be a very good idea, or that we always need to be in debt in order for the economy to actually function. I mean, our own personal experience tells us how fucking stupid such a financial situation is. But that's the point: we're not the federal government; we're individuals, and individuals are not enormously massive processors of money. So understanding federal spending in terms of our own personal experience is what's really fucking stupid.

Economics is pretty fascinating, no?

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