The National Debt and Our Grandchildren: Should We Worry?

By Arthur Benavie

Throughout our history Americans have embraced the myth that our national debt is immoral and destructive.

This deeply rooted belief goes back to our Founding Fathers: Jefferson excoriated debt as “the greatest of dangers to be feared.” Andrew Jackson demonized debt as “a national curse.” Current political leaders continue to endorse this negative view of our national debt. Obama said that incurring debt was “irresponsible” and “unpatriotic.” John McCain condemned it as “generational theft.”

In this book, the prize-winning economics professor Arthur Benavie, demonstrates in clear and non-technical language that belief in this myth has repeatedly blocked our federal government from creating jobs and investing in our children’s future.

Benavie describes the many occasions, including from the administrations of FDR to Obama, where our leaders were faced with severe political retribution at the mere suggestion that their policies would increase the national debt.

Belief in this myth presents a continuing danger to the wellbeing of our children and grandchildren. Benavie examines several ways to disempower it.

• Language: English
• Publisher: Austin Macauley Publishers
• Release date: Oct 13, 2023
• ISBN: 9781685622923

Arthur Benavie

Arthur Benavie received a PhD in economics from the University of Michigan. From 1967 to 2019, he taught at the University of North Carolina at Chapel Hill. He passed away on April 11, 2022. Benavie was widely acknowledged as a master teacher and over the years was honored with several teaching awards for his excellence in undergraduate teaching. He published numerous research papers in the area of macroeconomic theory and policy. He also published several books for the general public, including Deficit Hysteria; Social Security Under the Gun; Drugs: America’s Holy War; and How the Drug War Ruins American Lives.

Book preview

About the Author

Arthur Benavie received a PhD in economics from the University of Michigan. From 1967 to 2019, he taught at the University of North Carolina at Chapel Hill. He passed away on April 11, 2022.

Benavie was widely acknowledged as a master teacher and over the years was honored with several teaching awards for his excellence in undergraduate teaching.

He published numerous research papers in the area of macroeconomic theory and policy. He also published several books for the general public, including Deficit Hysteria; Social Security Under the Gun; Drugs: America’s Holy War; and How the Drug War Ruins American Lives.

Dedication

For Marcy Lansman, the love of my life.

Copyright Information ©

Arthur Benavie 2023

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Publisher’s Cataloging-in-Publication data

Benavie, Arthur

The National Debt and Our Grandchildren: Should We Worry?

ISBN 9781685622909 (Paperback)

ISBN 9781685622923 (ePub e-book)

ISBN 9781685622916 (Audiobook)

Library of Congress Control Number: 2023913763

www.austinmacauley.com/us

First Published 2023

Austin Macauley Publishers LLC

40 Wall Street, 33rd Floor, Suite 3302

New York, NY 10005

USA

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Acknowledgment

I am lucky to have benefited from the suggestions and criticisms of three fellow economists whom I admire: Richard T. Froyen and Stanley W. Black, both professors emeritus at the University of North Carolina at Chapel Hill, and Alan S. Blinder, professor emeritus of economics at Princeton University.

In addition, my dear friend Sidney A. Simon, Professor Emeritus of Neurobiology at Duke University, read the entire manuscript and provided numerous criticisms and suggestions.

Finally, since my target audience consists of those who follow the news but are not trained in economics, I persuaded a few non-economist friends to read an earlier version of the manuscript and let me know if they found it clear and interesting. Their responses encouraged me to continue with the project. I am grateful to Cecil W. Wooten, Leonard S. Gettes, and Richard V. Wolfenden. Their comments were invaluable.

Introduction

In the spring of 2020, the coronavirus began spreading over the planet, forcing industries to shut down and unemployment to soar. Our economy faced a collapse that threatened to exceed that of the Great Depression. Over March and April, 22 million jobs were lost, with the unemployment rate soaring to 14.7%.¹ On March 27, Congress, with overwhelming support, passed the CARES ACT, providing $2.2 trillion in direct payments to individuals, loans to small-businesses, $600 a week of additional unemployment insurance, and a moratorium on evictions.² In spite of this crucial and unprecedented infusion, most analysts believed that more support would be needed, much more.

Yet even in the face of the gravest economic threat in our lifetimes, Senate Republicans, within weeks of the financial infusion, began warning about the skyrocketing budget deficits and the escalating national debt. On April 27, Senate Majority Leader Mitch McConnell said, Given the extraordinary numbers that we’re racking up to the national debt…we need to be as cautious as we can be.³

He further stated he was against bailing out states and in favor of allowing states to use the bankruptcy route. My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them… That’s not something I’m going to be in favor of.⁴

Senator John Thune of South Dakota, the No. 2 Republican in the Senate, said, My hope would be that it’s more fine tuning what we’ve already done rather than taking on big, aggressive new initiatives that are paid for by additional debt.⁵

GOP senator Rand Paul was even blunter. Our annual deficit this year will approach $4 trillion. We can’t continue on this course.⁶

Even the Independent Bernie Sanders agreed with the Republicans, saying at a Town Hall, I’m concerned about the debt. It’s not something we should be leaving to our kids and grandchildren.⁷

At the same time, many economists and other policy experts were presenting a very different message. They were warning that the government’s relief efforts to date had barely sustained individuals, companies, and states, and that failing to provide additional support would result in extreme hardships caused by the public health and economic tolls of the pandemic. In mid-May, House Democrats proposed raising $3 trillion dollars by adding to the national debt and spending these borrowed funds to bail out states and provide direct payments to individuals. The proposal was killed by the Republican-controlled Senate.⁸

Students of American history were unlikely to be surprised by this Senate response. It’s rooted in the mythology that our national debt is evil and dangerous, a profound conviction that has flourished since the creation of our Republic. Thomas Jefferson called the nation’s debt a mortal cancer. Andrew Jackson saw it as a national curse.⁹ Federal budget deficits were also damned since they constitute increases in the national debt. One of the few economic doctrines that Franklin Roosevelt held firmly was that balancing the federal budget was sacrosanct.¹⁰ Senator John McCain condemned deficits as generational theft.¹¹ President Trump boasted he would eliminate the entire national debt in eight years.¹²

The depth of the sinister mythology that envelops the Debt has astonished me. It has not only been perceived as a burden on our progeny but as a danger to our democracy, an assault on our Constitution, a departure from morality, a threat to our government’s credit, and an erosion of our liberty.¹³ Debt and deficits have even been portrayed as nightmarish images by political cartoonists, drawing them – believe it or not – as dinosaurs, alligators, giant pigs, and even nuclear bombs.¹⁴ The legendary cartoonist Herblock pictured the deficit as a Frankenstein monster with MADE IN USA tattooed on its forehead.

Americans fear the national debt and deficits for many reasons. It’s widely believed, for example, that:

Debt burdens future generations.

We must pay off the debt.

Debt could bankrupt our federal government.

Deficits increase interest rates.

Deficits cause inflation.

Deficits reduce private investment.

Budget deficits cause trade deficits which are a loss to the nation.

We need a balanced budget amendment to the Constitution.

These allegations are either false or valid only under special circumstances. Throughout this book and specifically in the chapter on Debt Myths, I identify the grain of truth in these and other myths – if there is one.

Even though Americans’ aversion to debt stems from superstitions and falsehoods, it dominated national economic policy until it was seriously challenged in the 1930s by the acclaimed British economist John Maynard Keynes, who revolutionized economic theory by demonstrating that incurring budget deficits – which increases federal indebtedness – is in fact the key to curing otherwise intractable recessions. In spite of the overwhelming acceptance of Keynes’s view by economists, as well as its endorsement by many of our political leaders, the demonization of the national debt has continued to exert a malign impact on our nation’s economic policy. This book provides numerous examples, especially from the administrations of Franklin Roosevelt through Barack Obama, of how debt mythology has been responsible for government policies that have damaged American lives, causing the destruction of jobs, income, and investment, as well as the rejection of federal investments in infrastructure, health care, and basic science, all projects crucial for the wellbeing of our grandchildren.

I recently told a friend that I was writing a book about the national debt. She erupted immediately, blurting out, Oh God, I’m worried about what it will do to my daughters! She’s hardly alone. Media headlines and reports frequently scare and confuse us with breaking news that our national debt has reached unfathomable trillions and is continuing to grow.¹⁵ Due largely to the unprecedentedly large 2017 tax cut of $1.5 trillion enacted by the Trump administration, the specter of our burgeoning national debt has recently become increasingly alarming to pundits, politicians, the public, and even economists.

Here are some reactions to the February 12, 2019, headlines that our national debt had topped $22 trillion for the first time in U.S. history.¹⁶

The following joint statement was issued by former GOP Senator Judd Gregg and former Democratic governor Ed Rendell, co-chairs of the nonpartisan group Campaign to Fix the Debt: This milestone is another sad reminder of the inexcusable tab our nation’s leaders continue to run up and will leave for the next generation.¹⁷

The Harvard economist N. Gregory Mankiw published an op-ed concerning the problem of the national debt. His conclusion was, If higher taxes are the eventual solution to rising government debt, as seems likely, then we all are going to have to pay more. If we don’t, our children will.¹⁸

The American business magazine, Forbes, published an article entitled, Five Reasons Why You Should Worry About the Federal Debt, stating that Spending today and putting it on the tab of the next generation is immoral.¹⁹

Finally, consider a recent sampling of public opinion. In a Gallup poll of March 2019, 50% said they worried about the budget deficit A Great Deal; 30% said a Fair Amount; 10% Only a Little; and 5% Not At All.²⁰

According to a Pew poll of January 25, 2018, the percentage of Americans who believe that reducing budget deficits should be the country’s top priority has fluctuated between 48% and 74% over the period 2010 to 2018.²¹

Should we take these worries and cries of alarm seriously? I conclude from my research that the answer is yes. Our huge, soaring national debt is indeed likely to hurt our children and grandchildren. But, it’s panic over the debt that’s the danger, not necessarily the debt itself. Taking on more debt can be worth the cost or not, depending on circumstances.

So why is alarm over debt the danger? The major reason – and the focus of this book – is because debt-panic discourages federal borrowing (the issuance of debt by Congress) and the consequent spending, which constitutes the nation’s only medicine powerful enough to