The amount of debt accumulated by the United States Federal Government draws more public attention as time goes on. According to the United States Bureau of Fiscal Service, the current total public debt outstanding is $20,432,255,904,624.36 (Debt to the Penny). Critics of the debt insist this number is too high. They further extrapolate by claiming that a debt of this size poses potential threats to the U.S. economy by discouraging investment in education, damaging our relationships with nations that we trade with, and forcing our government to be beholden to the foreign entities that lent us the money. However, the national debt has been historically pacified by economic growth, the debt ceiling has been raised time and again without economic repercussion, and critics point to the $20 trillion figure with no regard for context. For these reasons, it should be perfectly clear that the U.S. national debt has little to no effect on its domestic economy. 

Since the term “debt” can be used in extremely ambiguous and vague terms, it is important to clearly define it in the context of the United States Federal Government. The United States Department of Treasury defines the total public debt outstanding (commonly referred to as national debt) as a combination of “Intragovernmental Holdings” and “Debt Held by the Public.” Intragovernmental Holdings are securities issued from the Department of Treasury to another government agency; effectively loaning money from said agency to the Department of Treasury (National Debt). Debt Held by the Public refers to the debt held by all entities outside the United States Government (Frequently Asked Questions). Examples of these entities include state and local governments, banks, foreign governments, individuals, and corporations. Whenever the words “debt level” are used, the total public debt outstanding is being referenced. Another term that will often be mentioned is “Debt-to-GDP ratio.” This ratio describes the size of the national debt relative to the total economic output of the country. A high output relative to a low debt level (therefore, a low ratio) corresponds to an ability to easily pay back the debt. 

The last recorded debt-to-GDP ratio was 104.17 percent in 2015 (Radcliffe). This number might be closer to 110 percent in 2017 but official statistics have not been released. If critics insist that the debt is too large relative to American Gross Domestic Product, it begs the question “How much is too much?” As of 2015, the unemployment rate ended the year at 5 percent and “median weekly earnings of full-time wage and salary workers rose at a faster rate than inflation in 2015” (Kang). Critics of the national debt claim that a debt-to-GDP ratio of 104 percent is too high and harms the economy. However, the Bureau of Labor Statistics reveals that the employment and wages increased in 2015 and the World Bank shows that the GDP in 2015 steadily grew. All of these indicators point to the conclusion that the economy performed well regardless of the unprecedented levels of debt that the U.S. Federal Government accumulated in 2015. The debt clearly does not affect economic success. Although the economy is shown to perform independently of debt levels, the question still remains of which ratio defines the “tipping point” that directly causes economic damage. Never has the American economy felt backlash from even the highest debt-to-GDP ratios in history. After the Second World War, the debt-to-GDP ratio was a record 119 percent. Many would agree that if a tipping point exists, this would be it. However, the country witnessed growth so enormous that the ratio fell to 51% in 1956 regardless of the state of the debt ten years prior (Amadeo). Growth such as that observed after the Second World War makes the current $20 trillion figure so misleading. The American economy has grown so much that, while $20 trillion is a lot of money, it does not directly create economic problems due to the sheer size of the rest of the economy.

Since many Americans are worried that our debt places us at the mercy of foreign banks and governments to which we owe money, it is important to understand how much the United States Federal Government owes such foreign entities. The country to which the United States owes the most money is China, to whom we owe approximately $1.5 trillion (The U.S. is $19.9 Trillion in Debt). Therefore, the debt-to-GDP ratio for our highest debtor is approximately 8.1 percent (The World Bank). A debt-to-GDP ratio of 8.1 percent means that, should such a need arise, the United States could easily pay off the amount borrowed from China or any other individual debtor; although this scenario is extremely unlikely. If one also considers the fact that other countries are in debt to the United States, the concerns that the United States’ debt damages international relationships or enslaves us to our debtors are false and are rooted in a lack of context. 

Of course, if the numbers indicate that the United States Federal Government has the capacity to pay off these small debts individually, it begs the question of why it has not been done already. Since budget deficits are already a problem, the United States Federal Government must take additional measures to tap into the wealth of its economy. According to Kimberly Amadeo, these measures include cutting benefits, eliminating entitlements, or raising tax rates. Unfortunately, each of these options is less popular than the last. The United States of America is a Representative Democracy, which means those who represent the citizens of the United States are beholden to the citizens’ opinions. If the representatives enact legislation that is unpopular, the citizens are likely to vote for someone else to take their place. This gives an incentive to the Senators and Representatives to only enact popular legislation and avoid unpopular legislation at all costs. Unfortunately, the measures that must be taken to reduce the debt are unpopular and would likely put politicians’ careers at stake. The failure of Republican Congresspeople to repeal the Affordable Care Act illustrates the difficulty and unpopularity of revoking benefits given to the citizens from the Federal Government. George H.W. Bush demonstrated the repercussions of enacting unpopular tax increases by losing re-election after a historically unpopular tax increase in 1990. 

Despite the unpopularity of tax rate increases and benefit slashing, Congress has repeatedly set a limit on how much it would borrow, failed to restrain itself to such a limit, and decided to keep borrowing rather than address the outstanding balance. “Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit” (Debt Limit). As foolish as this may seem, repercussions of such behavior have yet to be observed. Since 1960, the American economy has been at the mercy of the business cycle, financial markets, cultural changes, and other factors that dictate every economy. As a matter of fact, the United States of America has had been in debt since its first Fiscal Year 1789 (Government). This did not stop America from building the biggest economy in the world in less than 200 years. This illusion of controlling the debt is what allowed it to reach such a monumental total in the first place (Paik 26). The debt, alone, is not the root of America’s problems. If any negative consequences of high debt levels exist, they were created along the process of acquiring the debt; not as a product of the debt, itself. Gloria Ladson-Billings argues that the national debt is keeping the federal government from properly allocating funds to schools with majority black and Hispanic students. She claims this is why they are academically underperforming and, therefore, disproportionally suffering from poverty. She argues that the debt takes up so much of the national budget that there is no room for investing in improving minority education to help lift them out of poverty. Although this is a valid concern, it ignores how the of borrowing could have stimulated growth in the economy and allowed our budget to be the size it is today. She states reasons for why the debt should be addressed but none of them are economic in nature. In fact, all of her reasons are relevant to education, which indicates that the reasons for the debt, instead of the debt itself, brought about the problems that she discusses. Furthermore, the inability of the Federal Government to pay its bills has not stopped it from borrowing the necessary amount to pay those bills. In other words, if Congress deems an investment necessary, it has shown that it is willing to borrow the amount of money needed to make that investment. This has been made perfectly clear by Congress allowing the debt to accumulate to a historically unprecedented level of $20 trillion with allocation to defense and healthcare spending increasing every year. If Congress saw education as necessary as defense, the funds would be allocated accordingly. Ladson-Billings’ concern could be attributed to racism, poor budget prioritization, ideology, or a host of other potential factors. The problem lies with Congress’ prioritization of education, or lack thereof, rather than with the national debt alone. Therefore, while Ladson-Billings’ claim that investing in minority education would create productive members of the economy is valid, her claim that the national debt hinders this investment seems to be the product of misplaced blame. 

If foreign governments hold just over a quarter of our debt, the other three quarters of the debt are purely domestic. When a country is in debt with another country, the two options are clear: either the debtor receives its money and trade carries on as usual or the borrower fails to repay and faces consequences from the debtor. However, when a country is in debt with itself, the options are not so clear. If the country fails to pay itself back, the money that was borrowed permanently resides with whoever received that money. In this case, the citizens of the United States most likely received that money via welfare, Social Security, or Medicare. The product of this spending grew the economy as it either directly placed money in the hands of citizens or it reduced their expenses and, therefore, increased their amount of disposable income. This outlines the basis of the Keynesian Economic Theory, which marginally succeeded when implemented by the Presidents George W. Bush and Barack Obama via stimulus packages (Paik 177-180). From an ideological perspective, this possibility is favorable to those who support more Socialist economic policies. However, if the country succeeds in paying itself back, the interest involved in the repayment is added to the accounts of the various agencies, corporations, etc. and each of these entities find themselves with more money than they loaned out, which is a good thing. As a result, claims that the debt could reach a level that would depreciate the value of the U.S. Dollar because the sum of the debt is largely domestic. Foreign debtors would be unable to enforce repercussions of defaulting on the foreign debt, which would be one of the only ways for the U.S. Dollar value to change as a result of the debt. However, while it is not the case today, if foreign debt reaches a size large enough relative to GDP, the value of the dollar would likely decrease.

As complex as economic issues such as the national debt may be, it should now be clear that no direct correlation exists between the performance of the American economy and the size of its accumulated debt. The actions that caused the debt to reach record-breaking levels had consequences of their own and the United States of America remains one of the most economically powerful countries in the world. The economy will likely continue to grow, and the future of the debt is more or less at the mercy of politics. Context and perspective are traits that often fall to the wayside when discussing one economic issue over another, but it is imperative that one judges such complex matters as objectively as possible.
