How can we influence national debt?

I missed two weeks of blogging, while on an RV trip to Long Beach and Yuma Arizona. During that time I was able to re-evaluate my goals using The 7 Habits of Highly Effective People.

Habit 1 is: to be pro-active. The problems, challenges, and opportunities fall into two circles, if you will: A circle of concern and a circle of influence. The circle of influence includes things like our health, children, problems at work. Those are what we can do something about. Other things we have very little control over, such as the weather, terrorism and the national debt. But National Debt is my topic!

Habit 2 is: “begin with the end in mind”. How do you envision the end? If I cannot influence the National Debt, then how do I envision the end? In my last blog, I challenged young people to look for options of paying for college. I envision the end as looking for ways to learn and share the mechanics of how National Debt works. In the process I find confidence and a sense of relaxation while the world is in turmoil. Learning about business cycles made me realize that I don’t have to become nervous when we get in a recession.

So, I may not be able to influence National Debt directly, nor do I envision the end of National Debt, but I can learn and share the mechanics of how National Debt works. I can envision that in the end my audience (you!) and I will understand it better and can explain how it fits in our society.

“Families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.” (Nobody Understands Debt, Paul Krugman)

debt-as-percent-of-gdp

This graph shows how the National Debt was over 100% in the mid-forties as described by Paul Krugman.

So how do we get out of debt?  Should the USA do it again, as after WWII?

2 thoughts on “How can we influence national debt?

  1. Sorry, but 5 trillion of U.S. debt is owed to foreigners. The rest is owed to social security, other U.S. pension plans and the Federal Reserve. The low interest rates will not only hurt pension returns and many will be underfunded when the U.S. population ages.

    • Thanks for that comment. Looking at my blog again, I noticed that I am combining two time periods: The debt of WWII and the current debt. The debt to foreigners and social security were not nearly as large in the late forties-early fifties, I assume? I can see how low interest rates hurt people on pensions.

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