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The national debt tops $34 trillion — a record high. How worried should we be?


The national debt now tops $34 trillion, a record high. So how worried should we be? That seems to depend on which economist you ask. Joining us now is Stephanie Kelton. She's a professor of economics and public policy at Stony Brook University, and she served as a senior economic adviser for Senator Bernie Sanders' presidential campaigns. She's also a proponent of modern monetary theory, or MMT, which argues that since the U.S. prints its own currency, it can't run out of money like a household or a business can. Welcome to the program.

STEPHANIE KELTON: Thank you for having me.

FADEL: So $34 trillion in debt sounds scary. Should people be afraid?

KELTON: No. They shouldn't. It's the word debt that makes people afraid. And so when I think about this, you know, I look at this number, and I think, well, it's just keeping track of our savings. That's what it's really recording. So over the arc of U.S. history, the U.S. government typically spends on an annual basis more dollars into the economy than it taxes away from us. And so it's adding dollars, and over time, we keep track of how many dollars have been added. And what that 34 trillion is telling you is that over the long sweep of history, the U.S. government has put that many dollars into our hands without taxing them away. So what it is is it's our after-tax savings that's being reported. So when you think about it like that, it really does kind of change your perspective. And you say, well, should I be very worried about this large savings that has been accumulated? And I think that leads us in a very different direction.

FADEL: But we often hear politicians, especially Republicans, compare the national budget to a household budget, as in, the government should only spend the cash that it has. Is that a fair comparison? I mean, I know in your view it's very different.

KELTON: Well, it is very different. And if they did that, then of course the rest of us couldn't accumulate any surplus. We wouldn't have that savings if the government always took back exactly the amount that it put in, then by definition, the rest of us wouldn't end up with any extra dollars to hold on to as part of our wealth, as part of our savings. So the big mistake here is in thinking of the federal government the way we think of an individual - you know, our personal finances or an individual household. They're nothing like one another. The federal government is the issuer of the currency, and the rest of us are users of the U.S. dollar. We actually have to go out and get it in order to be able to spend it. The federal government has to spend it before the rest of us can get it and either have it available to buy goods and services in the economy, to pay taxes, to buy government bonds or to save.

FADEL: But there are risks - right? - associated with the growing national debt. In November, financial firm Moody's lowered its outlook on U.S. debt from stable to negative. Treasury Secretary Janet Yellen disagreed with that decision but acknowledged that current economic circumstances could make the federal debt less sustainable. I mean, what are the risks associated with the growing national debt?

KELTON: Well, they're not economic, and they're not financial. And in the downgrade, I think, you know, the rating agencies have made clear over time that, you know, what they're thinking about is not the federal government's ability to pay, because that is unquestioned. When you are the issuer of the currency, of course, you can never run out. You can't be forced into a situation where you cannot afford to make the payments to meet the obligations, but you could become unwilling to pay.

And so what the rating agencies are kind of keying in on here is the, you know, political dysfunction where you have Congress periodically threatening to default, playing around with the debt ceiling limit and saying things like, well, maybe it wouldn't be so bad after all, if, you know, we didn't raise the debt ceiling limit and we actually missed a few payments. Of course it would be bad. It would be catastrophic, which is why we never do it. But it does make the rating agencies concerned, and rightly so. And they are warning financial markets and investors that, you know, there are reasons to maybe, you know, raise some concerns with respect to the government's willingness - not ability to pay, but its willingness to pay. And that's worth, you know, commentary.

FADEL: So if there is a scenario - is there a scenario in which the U.S. defaults on its debt like Greece did in 2015? Would that be something more political than economic?

KELTON: It would be entirely political. Remember, what Greece did in 2001 is that it abandoned its currency, which was the drachma, and it joined a number of other countries who had done the same thing, giving up their sovereign currencies and joining the Economic and Monetary Union, the euro project. So Greece started borrowing in a currency that it can't issue. And so along with Italy and Spain and Portugal and the rest of these countries, there is legitimate default risk...

FADEL: I'm going to have to leave it there.

KELTON: ...But not here in the U.S.

FADEL: I'm so sorry. That's Stephanie Kelton, professor at Stony Brook University and author of "The Deficit Myth: Modern Monetary Theory And The Birth Of The People's Economy." Thank you. Transcript provided by NPR, Copyright NPR.

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