By Simon Johnson
In the nation’s latest fiscal mood swing, the mainstream consensus has swung from “we must extend the Bush tax cuts” (in December 2010) towards “we must immediately cut the budget deficit.” The prevailing assumption, increasingly heard from both left and right, is that we already have far too much government debt – and any further significant increase will likely ruin us all.
This way of framing the debate is misleading – and very much at odds with US fiscal history. It masks the deeper and important issues here, which are much more about distribution, in particular how much are relatively wealthy Americans willing to transfer to relatively poor Americans?
To think about the current size of our debt, start at the beginning of the American Republic. (For a very short history of US government debt, listen to my conversation with NPR’s Guy Raz from this weekend; we cover more than 200 years in about 3 minutes; if you want more detail, look up the annual debt numbers for yourself at Treasury Direct). Continue reading