Debt, broadly speaking, is money we owe to ourselves

Question: Do deficits matter?
Position‹3 of 3: Moderate deficits are good, very high deficits lead to problems
Argument: Debt, broadly speaking, is money we owe to ourselves

Most debt that governments take on is owed to its own citizens. Debt is a liability, but every liability is someone else's asset. Debt involves a transfer from those who pay taxes to those who own bonds and the money stays in the economy.

The argument

People think of debt’s role in the economy as if it were the same as what debt means for an individual. Lots of debt is a very bad thing for a person. However, the debt we create is basically money we owe to ourselves. Debt is rarely owed entirely to another country, and most debt is paid from taxpayers to bondholders, via the government. This involves distributional issues in the country, but these are separate issues to whether debt itself is good or bad and sustainable or unsustainable.

Premises

[P1]People wrongly equate national debt with personal debt; while heavy debt harms an individual, national debt is largely money a country owes to itself. [P2] Debt is rarely owed entirely to another country—most is paid from taxpayers to bondholders via the government—so it raises distributional questions separate from whether debt itself is sustainable. [C] Therefore, because debt is largely money we owe ourselves, moderate deficits are manageable while only very high deficits lead to problems.

Counter-arguments

This argument ignores a few key issues: - Even when all debt is domestically held, this argument ignores strong distributional effects. Those who pay taxes will be transferring money to those who own bonds. For example, billionaires could be the bondholders and middle class people could be the taxpayers. - Even if the debt is all internally held, high deficits can still lead to excessive aggregate demand and higher inflation. - For some countries a high proportion of the debt is not held internally and is in fact owed to foreigners. This leads to currency crises and transfers money from locals to foreigners.

Rejecting the premises

[Rejecting P1] "We owe it to ourselves" treats a country as a single agent, and the premise's own next line concedes that it is not — taxpayers and bondholders are different people. That is not an aside but the substance of what the debt does. [Rejecting P2] Setting distribution aside is what requires justifying rather than a step in the argument, and the counter names two further consequences excluded by assumption: internally held debt can still add to demand and inflation, and in many countries a substantial share is held abroad, which makes the "ourselves" false as a matter of fact. Where the line between moderate and very high falls also never follows from anything offered.