Political

Freedom from (fear of) national debt – a short book by Frank Newman well worth a read

Frank N. Newman was Deputy Secretary of the Treasury in the US. As a result, he has some good experience to call on in his slim book about why people – politicians especially – shouldn’t be scared of national debt. Though written about and for America, his arguments that concern over the size of accumulated debt dominates political discussion far too much also have relevance in the UK.

Freedom from National Debt by Frank NewmanThe book’s brevity (90 pages) makes it a quick read, though also one I suspect that will not persuade sceptical readers on key points. Rather, consider this a brief introduction to the argument, rather than a thorough primer that will give you enough detail to change your mind (or to really arm you with enough detail to change another person’s mind if you already agree with the author).

But a brief introduction is often very useful, and this book does that job well, especially in highlighting the dangers in talking about government’s accumulated debt using parallels with individual households. A government such as the US (or the UK) can always make emergency boosts to its money supply to avoid meltdown – as we’ve seen in the last few years – in a way that an individual household cannot.

Households run out of money every day. Neither the US not the UK government has, despite sudden mammoth financial such as two world wars and several major recessions. Governments can boost money supply and be lauded for it; households with printing presses in the basement tend to get arrested.

Newman also points out the value in having accumulated debt, because debt means the existence of US Treasury securities, which in turn provide both Americans and the world with a useful and very safe place to put their money. Indeed, although Newman doesn’t talk about this, when the long-term budget projections until Clinton started pointing towards the US being able to pay off all its debts eventually (a very different world!), many economists worried about the implications of there being no debt because of the huge and beneficial role US Treasuries play by their very existence. (Several years ago NPR did a great story about this, which is still available to listen to online and is well worth a look.)

Frank Newman’s other key point is a more technical one – and one where the book’s brevity is a little bit of a drawback – but essentially it is that if you really want to draw a a parallel with households it is that national debt is more like a debt within the household rather than a debt to an external authority. Hence the idea of paying off the debt, when it’s a debt to yourself, is very different from the idea of paying off a debt when it’s a debt to someone else.

As he says, “Money can flow out of a family’s accounts, but US dollars cannot flow out of the US financial system”. He extends his argument to cover national debt that is owned by foreigners and foreign countries, still drawing the same conclusion because of the knock-on effects through the financial system of when a foreigner buys debt. But this is where the brevity means I suspect critics will disagree without finding enough in the book to convince them otherwise.

These are all points about debt, and he does make a nod in the direction of there being other reasons why controlling deficits over the full economic cycle makes sense – although for my money he doesn’t talk enough about the evidence that high debt:GDP ratios cost economic growth and hence the argument that if not being fearful of debt, politicians should at least be fearful of prolonged very high levels of debt relative to GDP.

Newman also points out that the US (and the UK) are in a very different situation from members of the Euro, as his arguments rest on the nation which has a national debt also having its own central bank, with the ability to create money and set interest rates. Members of the Euro do not have this and hence debt can box them in – in ways that don’t apply to American or Britain.

Buy Freedom from national debt by Frank N. Newman here.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

All comments and data you submit with them will be handled in line with the privacy and moderation policies.