I'm honestly not sure if that is the case anymore. With a purely fiat system we really can't afford to pay off the debt, doing so would remove money from the money supply and could lead to an economic contraction.

I'm no sure what would happen economically if we paid off federal debt in any meaningful amount. I'd be really curious if you have any insights into what that would look like.

I do think we can pay off the debt. It would require an increase in taxation that would cause an S&P 500 contraction.

When it comes down to it, it'll be a political choice between cutting Social Security benefits (absolutely no way this happens) and a highly progressive tax on the country's wealthy.

I don't think the first one is going to happen, and our two party system is so totally dominated by the country's wealthy population that we'll never even see a vote on the second during peacetime.

One route is to "grow" our way out of debt, and those hopes are pinned on some blend of nuclear fusion and "AI, AI, smth smth, AI".

Failing that strategy, I think that spiraling U.S. debt is one of the features that greases the slide towards WW III. :/

Last time around, we needed WW II to rebalance power between asset owners and renters in this country – it literally required a global, existential struggle to get wealthy people to pay taxes. I'm afraid we're on the same track today.

> I do think we can pay off the debt. It would require an increase > in taxation that would cause an S&P 500 contraction.

I was very worried about the huge deficits from the Reagan era. But when Clinton was elected, and he raised taxes, I thought we were done for.

Surely, raising taxes would cause the economy to contract more, which would lead to even less government revenue, a higher deficit, ever more impossible to service, etc etc....

Well. Imagine my surprise a few years later when the deficits turned into surpluses.

What I had forgotten to take into account is that raising taxes causes the interest rates to go down--if the government isn't borrowing billions and trillions of dollars, i.e., if the demand for debt goes down, the price of debt (i.e. the interest rate) also goes down.

So an upper middle-class guy may have gotten his taxes raised by a few thousand dollars--but he just refinanced his mortgage from 10% to 5% and saved a thousand dollars a month. (Yes, interest rates for mortgages were that high, and higher. My Dad bought a house at $14% interest rate in the 80's).

I remember reading an article in the Wall Street Journal by a guy who was scared to death of the surpluses--in a few decades, he said, we'll no longer have any 30-year government bonds. How will Fannie May and Freddie Mac be able to subsidize 30-year mortgages? How are we going to use Black-Scholes to calculate the correct value of derivatives if we don't have a measure of the zero-risk interest rate??

Alas, the supreme court threw away Gore, and installed Bush as president, where he solved those "problems" in very short order.

I think one part that’s missing from this narrative that’s otherwise solid is that the Clinton administration raised taxes while simultaneously expanding globalization (NAFTA, expanded ties with China).

Nowadays, we’d be raising taxes while globalization is contracting. On-shoring is inflationary, because the same goods as before cost more.

Raising taxes in an inflationary environment is scarier than raising taxes in a deflationary environment.

> Raising taxes in an inflationary environment is scarier than raising taxes in a deflationary environment.

I know it can be scary, but, we are going to have to muster the courage to try unorthodox things--like actually paying the bills. Raising taxes in an inflationary environment can be a very beneficial move. Why? Higher taxes reduce demand, which helps fight inflation.

This takes some pressure off of the Fed. The Federal Reserve only has a very few policy tools to control inflation or to stimulate the economy: basically they can either rase rates or lower rates.

But if inflation is being controlled by increased taxes, the Fed doesn't have to raise interest rates as much--or even at all--to control inflation.

And a lower interest rate means that companies can afford invest in things which will increase profits and will raise the productivity of its workers. Which fights inflation.

In addition, higher taxes means lower deficits, which means the government isn't hoovering up all the money available for investment. It will issue fewer bonds, and people who would have bought those bonds will have to start investing their money in actual productive businesses. Which also helps inflation.

It doesn't have to be a doom spiral--we can spiral up if we just stop buying into the notion that we can get out of this if only we make the deficit large enough.

I mean I totally agree with you, I just don't think there's political willpower to swallow the pill and actually pass legislation that would increase taxes.

Because, all else equal, capital owners (who set the policy agenda in Congress) would prefer to keep their wealth continue rolling the dice until they can't anymore.

Its easy to forget--but we are the many; they are the few. And Trump hasn't quite succeeded in rendering our votes moot. Capital owners can only control congress by persuading us that we should let them.

I believe its a very good thing that we have billionaires--look at what China's economy did once they let some people become billionaires. But in China or anywhere else, there are only billionaires because we believe that their existence benefits us--that we are better off if there are billionaires around.

If it doesn't benefit us to have them around, eventually we will all figure that out and change things so that once again they do benefit us.