Glossary/National Debt

Glossary | Concepts | National (Public) Debt

'House' Definition

National debt refers to the total amount a sovereign government owes through bonds and other debt instruments. For governments that issue their own currency, this debt is not a burden, as they can always create more money to meet their obligations. National debt represents the private sector’s net financial assets. That is, money created by the government but not yet taxed back. National debt reflects the accumulation of the private sector's net financial assets, meaning money created by the government that has not yet been taxed back.

Other Definitions

In mainstream economics, national debt is the accumulation of government borrowing, primarily through the issuance of bonds. It is viewed as a liability that must be repaid over time, often with interest. High levels of national debt are seen as problematic, potentially leading to higher interest rates, crowding out private investment, or requiring future tax increases. The national debt is regarded as a burden on future generations, and prudent management is considered necessary to avoid fiscal crises.

Discussion

MMT argues that for countries with sovereign currencies (e.g., the U.S., UK, Japan), the size of the debt itself is not the issue. Instead, the focus is on whether government spending exceeds the productive capacity of the economy, which could lead to inflation. MMT views national debt as the accumulation of untaxed private sector savings, with the real constraint being inflation, not insolvency.

In contrast, orthodox economists worry that excessive national debt can lead to higher interest rates, inflation, or a loss of confidence in a government's ability to manage its finances. They emphasize the need for balanced budgets and debt reduction to prevent fiscal crises.

References

• Mitchell, W., Wray, L. R., & Watts, M. (2019). Macroeconomics. Red Globe Press.
• Kelton, S. (2020). The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy. PublicAffairs.
• Mosler, W. (2010). Seven Deadly Innocent Frauds of Economic Policy. Valance Co.