The U.S. is in the Hole. Will We Stop Digging?

Summary

Optimist Economy Podcast Summary

Episode Title: The U.S. is in the Hole. Will We Stop Digging?
Release Date: June 10, 2025
Hosts: Kathryn Anne Edwards and Robin Rauzi
Description: On this show, we believe the U.S. economy can be better, and we talk about how to get there, one problem and solution at a time.

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Introduction and Retcons

Timestamp: [00:00 - 04:35]

Kathryn Anne Edwards (Kath): Welcomes new and returning listeners, briefly mentioning support options like the newsletter and donations via optimisteconomy.com. She humorously acknowledges her rapid-fire pitch for donations, hinting at long-term listeners' familiarity with this routine.

Robin Rauzi (Robin): Discusses a retcon (revisiting and revising past episodes) related to the discharge of debt and bankruptcy, emphasizing the complexities of declaring bankruptcy, especially concerning student loans and other specific debts.

Key Points:

• Retcon Importance: Addresses feedback from listeners to correct and expand on previous topics, ensuring accuracy and depth.
• Maternal Mortality Discussion: Acknowledges nuanced perspectives on maternal mortality, highlighting disparities based on race, geography, and socio-economic factors.
  • Quote: "Maternal mortality is really uneven in the U.S. Rich women, white women, women in urban areas [...] have very different risks than someone in rural areas, women of color." ([02:10])

National Debt Overview

Timestamp: [09:38 - 22:14]

Robin: Introduces the topic of national debt, referencing Moody's recent downgrade of the U.S. credit rating from AAA to AA1, placing the U.S. alongside countries like Finland and Austria.

Kath: Elaborates on the significance of national debt relative to GDP, tracing its historical peaks during World War II and the subsequent decline post-war until the 1980s. Discusses the surge in debt from the 1980s to the early 2000s due to increased defense spending, tax cuts, and economic downturns.

Key Points:

• Debt-to-GDP Ratio: Explains how the U.S. debt relative to GDP has fluctuated, emphasizing that a higher ratio doesn't inherently signify economic collapse but depends on management and economic context.
• Factors Contributing to Debt Increase:
  • Tax Cuts (37%): Primarily under the George W. Bush administration, seen as ineffective economic policy due to lack of targeted spending.
    • Quote: "Most tax cuts are like taking money and throwing it into the wind." ([23:00])
  • Spending (33%): Includes defense spending for wars in Iraq and Afghanistan, Medicaid expansion, and Medicare Part D.
    • Quote: "We fought two wars to the tune of several trillion dollars each, and we passed four tax cuts." ([20:24])
  • Recession Response (28%): Financial crises in 2008 and the COVID-19 pandemic required substantial federal intervention to support the economy.
    • Quote: "Recessions are very expensive." ([18:28])

Notable Quotes:

• Kath: "The U.S. debt as a share of GDP has doubled in 15 years." ([13:05])
• Robin: "We are now at a trajectory that you can't get anyone to defend and say that we're in a good place." ([16:11])

Debt as a Neutral Tool vs. Current Concerns

Timestamp: [22:14 - 26:33]

Kath: Discusses the concept of debt being neutral when managed correctly, allowing for economic investment and maneuvering during crises. Contrasts this with the current predicament where debt is financing mainly current consumption rather than productive investments.

Key Points:

• Modern Monetary Theory (MMT):
  • Definition: Argues that the U.S. cannot default on its debt as it controls its own currency and can print more money if necessary.
  • Implications: Supports large-scale government spending but risks inflation if not managed properly.
    • Quote: "MMT is kind of like giving the economy preference over deficits with a broader brush." ([29:17])
  • Criticism: Hosts express skepticism about shifting monetary policy control from the Federal Reserve to Congress, doubting Congress's ability to manage inflation effectively.

Notable Quotes:

• Kath: "Debt is great because it gives us the ability to maneuver around these big crises." ([22:14])
• Robin: "Most of this debt was accumulated when interest rates were so low that it wasn't free money, but it was a lot closer to free than like 5%." ([36:15])

Optimism Amidst Debt Concerns

Timestamp: [34:50 - 39:52]

Kath and Robin: Transition to a more optimistic outlook despite the rising debt, emphasizing that the U.S. economy remains strong and capable of growth.

Key Points:

• Potential for Debt Reduction:
  • Emphasizes that with the right policy decisions, the U.S. can change the debt trajectory and reduce it relative to GDP.
    • Quote: "We could pretty easily change the trajectory of the US fiscal situation so that the debt is falling as a share of GDP." ([38:35])
• Public Sentiment and Political Will:
  • Believes that Americans are passionate about addressing debt issues and that future political leaders will take necessary actions.
    • Quote: "Americans don't want debt to be in a bad place. They want to be more responsible." ([41:22])
• Investment in Public Services:
  • Asserts that essential services like childcare, school lunches, and Social Security can continue without needing to achieve zero debt, provided the debt is managed correctly.

Notable Quotes:

• Kath: "I take optimism from the nuance, I take optimism from the potential." ([37:45])
• Robin: "Our system absolutely supports amazing investments. We just do not have people in Congress doing them." ([34:57])

Conclusion and Final Thoughts

Timestamp: [43:20 - 50:23]

Kath and Robin: Wrap up the discussion by reinforcing the optimistic stance while acknowledging the challenges ahead. They share light-hearted "executive orders" as palate cleansers, emphasizing the human side of political and economic discourse.

Key Points:

• Resilience and Future Prospects:
  • Despite high debt levels, the U.S. economy's consistent growth provides a foundation for optimism.
    • Quote: "The economy is still growing. And like, if we have a recession, it'll be a blip and like, we'll go back to growing again." ([38:35])
• Community and Support:
  • Highlight the importance of listeners' support and the role of community feedback in shaping the show's narrative.
    • Quote: "We like getting these comments. [...] It's not definitive or declarative." ([05:46])

Notable Quotes:

• Robin: "I have lived with growing debts, national debt, my entire adult life, but only recently really did start to feel." ([35:02])
• Kath: "We will get there. We have to." ([42:12])

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Key Insights and Takeaways

1. National Debt Complexity: The U.S. national debt is a multifaceted issue influenced by historical events, policy decisions, and economic cycles. Understanding its nuances is crucial for effective management and policy-making.

2. Debt as a Tool: When managed appropriately, debt can be a powerful tool for economic growth and crisis management. However, current debt levels financing primarily consumption rather than investment pose significant challenges.

3. Modern Monetary Theory: While MMT offers an alternative perspective on debt management, concerns about its practical implementation, especially regarding inflation control and fiscal policy reliance on Congress, remain prevalent.

4. Optimism Anchored in Resilience: Despite rising debt levels and economic uncertainties, the consistent growth of the U.S. economy and the potential for policy-driven debt reduction provide a foundation for optimism.

5. Importance of Community Feedback: Engaging with listeners and incorporating their feedback enhances the depth and relevance of discussions, making the dialogue more dynamic and responsive.

Conclusion

Kathryn Anne Edwards and Robin Rauzi present a balanced view of the U.S. national debt, acknowledging its challenges while highlighting avenues for optimism. By dissecting historical contexts, policy impacts, and economic theories, they encourage a nuanced understanding of debt management. The episode emphasizes that with informed policy decisions and collective will, the U.S. can navigate its fiscal challenges and foster a stronger economy.

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For more insights, subscribe to the Optimist Economy newsletter and join the conversation by emailing [e-mail]. Support the show at Buy Me a Coffee.

Transcript

[A]

Foreign hello and welcome to Optimist Economy. I'm Katherine.

[B]

I'm Robin.

[A]

On this show, we believe the US Economy can be better and we talk about how to get there one problem and solution at a time. For our newer listeners to Optimist Economy, we welcome you to the show and start by saying that you can support us. Join us, be part of us. @optimisteconomy.com we have a newsletter that you can subscribe to. We absolutely take donations. We also have a buy me a coffee account where you can do the.

[B]

Same information on all of [e-mail] optimistecomy.com.

[A]

Just a quick sidebar for our long term listeners. Doesn't it feel like we're getting more natural at that part? Like new listeners, we've been good at this the whole time. Old listeners, what about the journey you're witnessing here? You'll notice when I'm uncomfortable, sometimes I speak incredibly quickly like, hey, by the way, give us money. We really needed to do the show. Okay, so cool. Bye. Robin, what's your retcon?

[B]

The only retcon that I had listened when I listened to our last episode was the question about discharge of debt and bankruptcy. And we had said, for instance, that student loans were among the things that you could not get rid of by declaring bankruptcy along with other. Some certain things like apparently the injuries you cause in drunk driving accidents and alimony and child support tax debt. So you can appeal. You have to have a special hearing.

[A]

Yes. Yeah. I mean, it's not easy. I guess it's not easy.

[B]

It's not automatic.

[A]

Right. If you go into bankruptcy, you have to file a separate hearing to get permission to discharge your student loan debt. And if you do, they take into account like how hard you tried to pay it back. So it's not just you go into bankruptcy and you have debt and it goes away. Like it's, it's, it still comes down to their behavior and they can say no.

[B]

Got it. Okay. Retcons for you.

[A]

I have like a whole host of things.

[B]

I know you got like a list. I see.

[A]

I have like, yeah, I have a list going well. So just to kind of go backward in time, for past episodes, we had a listener write in about the fertility episode saying that we weren't right in how we talked about maternal mortality rates. And I think we were using different measures. So I. Maternal mortality has measures where like you can look how far out you look, whether or not you look at any cause of death or a cause of Death related to pre or postnatal conditions. And so the listener wrote in to say that, you know, she works in this space, and she thought that we were mischaracterizing maternal mortality. So we posted the letter and some links to how the CDC talks about how hard it is to measure maternal mortality and kind of the ways that it happens. I think her material point, which is one that we can emphasize here, is that maternal mortality is really uneven in the U.S. rich women, white women, women in urban areas, women at large teaching hospitals in urban areas. They just have very different risk than, say, someone in rural areas, someone who goes to worse hospitals, women of color.

[B]

I think that she also pointed out that in her eyes, women are also dying from things that are not directly related to their childbirth, but things like postpartum depression, suicide, et cetera. And that she thinks that that's also part of the kind of maternal health question.

[A]

It's an acute time in people's life. Something that I didn't bring up in the fertility episode that this kind of called to mind and was. You know, the other part of my retcon for fertility is we never talked about how people who can limit their fertility because they have such a hard time in pregnancy.

[B]

Right.

[A]

You know, when, like, okay, they have.

[B]

A rough pregnancy and they don't have enough.

[A]

Yeah, rough pregnancy, rough labor and delivery, rough postnatal. Like, you end up with some type of eclampsia. You have. I don't know what the condition is, but some people have this condition where, like, they never get over morning sickness. And their morning sickness is incredibly acute. And that would be a. I don't think I should do this again because it was so harmful to my health as a woman. That's not something that you can. That policy can fix. But we should recognize that, like, the whole conversation, there was no mention of, like, also, pregnancy blows. And if you were to say, you know what? I've had my fill, and I am not doing this again. That is another thing that policy, you know, would not.

[B]

Not gonna change.

[A]

Yeah, not gonna change the childcare episode. When we were talking about how fraught friend and family care reimbursement can be, I didn't say plainly. Something that I genuinely believe to be true is that this care matters. And it's not easy to incorporate it into a federally reimbursed system, but it's often the type of care that people prefer, especially when their kids. And the difficulty of it doesn't mean we shouldn't do it. I think what I was overemphasizing is I'm so worried that if we get it wrong, it'll be used as like a justification to pull back childcare investments. And so I did not give as much space to just how much people like and want friend and family care. And that just because it's difficult to incorporate in the system doesn't mean that we can't. The other thing I got a comment on one of the socials about this is that someone said the biggest argument that resonates with conservatives about childcare is that people don't think that they'd have a choice in whether they send their kid. Which was wild to me.

[B]

Yeah, I've heard that too.

[A]

Like, they won't let me stay home. They're gonna make me take my kid to some, like, communist run.

[B]

Yeah, government. Some sort of government camp childcare.

[A]

She was like, be sure to tell people that this would still be voluntary. And I was, why on earth wouldn't it be voluntary? But, yeah, I guess that's something that comes up a lot is people are told kind of in the activating people against more support for childcare that you wouldn't have a choice. I guess it resonates on some level of the government will make you work. I'm like, well, there's a lot of people would say that the government does make them work. So maybe that part is more intuitive than. And you'd be required to take your kid to a childcare center. I wanted to make sure I got that in there. Those are two things I didn't say about childcare. The last thing I'll say about this is that we like getting these comments. Like, we. This is a long retcon because I was going through a ton of comments beforehand and I. I think that this is one thing we like doing about the show is just. It's not a one direction of conversation. And we like hearing from you. We like any letters from you. @optimist.eacreymmail.com we like getting comments on the socials and on the substack and it's really helpful. So we. We like being able to make this more of a conversation. It's not definitive or declarative.

[B]

Well, it's pretty declarative, but I mean.

[A]

I'm declarative, but I will listen to declarations in response. So is it. What's that called? Dialogue? I don't know.

[B]

Conversation. Yeah.

[A]

Speaking of which, did you look at many terms and conditions?

[B]

You know, I didn't look up a term, but I did. I looked up a condition. This Week. I knew we were going to talk about the debt. And I also knew that Moody's had, in mid May, downgraded the U.S. credit rating. And I realized that I don't know anything really about bond credit ratings. So I wanted to know, like, well, where are we? Like, where do we. Where do we stand? What happened? So we went from a AAA bond to an AA1 bond. This is in a 21 notch system that is, I'm just going to say, needlessly confusing, which is AAAA1, AA2, AA3, and then it goes into the Bs and then the Cs. What I wanted to know was like, okay, well, who else is aaa? So Germany still is. Australia, Canada, Switzerland, Denmark. We are kind of in the ballpark of like, Finland and Austria. Oh, yes. And then also the. If you wanted to buy government bonds in the Seattle water treatment system, that is also AA1. So, you know, we're right up there with cleaning sewage in Seattle.

[A]

Robin, this show is called Optimistic Economy.

[B]

No, I mean, Finland's okay, right? Austria, These are okay places.

[A]

They all sound like countries.

[B]

They all sound like legit countries.

[A]

This is our third downgrade. There's three major Standard and Poor, Fitch and Moody's. And Standard and Poor and Fitch had already both downgraded. They did it around debt ceiling standoff of like, wow, is this a government that's supposed to pay us back money that is like, really at the fringes of functioning normally? When they did it kind of as a result of the debt ceiling standoffs that we've had, Moody's was interesting. I mean, they basically did it because of the tax bill.

[B]

And they did it and said as much.

[A]

And they said, like, you're about to pass a really bad piece of legislation that will add to the debt that is not fiscally responsible. And like, I mean, in the world of credit rating agencies for bonds, which I admittedly isn't necessarily a rodeo, I thought that was a pretty wild report.

[B]

Yeah. And they just. I mean, it reads like an op ed, frankly, you know? Yeah. Not exactly what you expect from a staid credit rating agency.

[A]

This brings us to our centerpiece today, which is we wanted to talk about the national debt.

[B]

Let's talk about the debt. Actually, I wanted to say in the start, I am impressed that on a show about optimism that you're like, let's talk about the debt.

[A]

Well, we did get a lot of questions about it. I think the debt instills some kind of natural sense of panic, which certainly, like debt in our personal lives, is Enough to leave one with like low grade anxiety.

[B]

Yeah. And. Well, and we just talked about the bond situation and Moody's was fairly strong in its statement about the effects of the budget just paying interest on the debt, which gave me a little bit of a panic attack when I read it.

[A]

Sure. Yeah, we gotta, you gotta take these things head on. So let's get back to the optimism part later.

[B]

Okay. We'll work our way up to it.

[A]

We're going to work our way up. Got to build, got to like break it down and build you up the US debt. So this is, this is money that people have lent to the US government primarily through the sale of treasury securities, like bonds that the government promises to pay back.

[B]

Right.

[A]

And the occasion for borrowing mainly comes from the annual shortfall in how much the government collects in taxes and how much it spends in outlays in a given year. That if there is a difference there, that's negative, it's a deficit. So if you're going to spend $100, but you only took in $95, you've got to borrow the last five. And that is part of the debt. So one way to think of the debt is it is the accumulated deficits that the US has had over many years. Then there are other things that, you know, we can also just sell bonds because people will buy them and then like Social Security holds a lot of bonds as well as a special debt holder. But it mainly comes from accumulated deficits.

[B]

Right. I think one of the ways I knew I was an adult was when I understood the difference between deficits and the debt. I remember in the 1992 election actually was the. When Ross Perot was out there with his charts. And that was then, of course, after that election, it was the Clinton administration was the only time in my voting adult life that we had, and I am not young surplus.

[A]

Yes.

[B]

Did not run a deficit.

[A]

So the, the brief, like history of the US debt is that it got real big in World War II. This is a technical term. Real big.

[B]

Real big.

[A]

Real big. It got real big. And it was over 100% of GDP. So the number for the size of the US debt doesn't really make a lot of sense. It really is, how large is the debt relative to our economy?

[B]

Wait, when you say the number, you mean like the actual dollar amount of the. Yeah, the actual dollar amount question. The question is how is it compared to how, how much? It's like, you know, it doesn't matter if you own a million dollar, if you owe a million dollars on Your house, if you have a 23 million dollar house.

[A]

Right.

[B]

But if you have a million dollars on a $500,000 house, you're in trouble.

[A]

Yeah. Problem. So we kind of measure the US Debt as a percentage of our gross domestic product, which is the estimate of the size of the U.S. economy. And in World War II it got over 100%. In the decades afterwards it fell. But starting around 1980, it took off again and it had been mainly falling since World War II. And we, you know, there's, there's ups and downs and blips in there, but the, the actual size of the US Debt was, was falling relative to the economy.

[B]

Is that also because the economy is growing?

[A]

Because the economy is growing.

[B]

Right.

[A]

So it's not like the debt itself has ever gotten smaller. It's mainly that our economy has grown like relative to the economy. We're outgrowing it. I mean, we're paying it down and outgrowing it. Well, that lasts until around the 1980s and debt had gotten to about 30% of GDP and then it just really started to rise again. And for the next 15 years, debt increased from like around 30% of GDP to 65. And this is like the 1992 election, Clinton's first term. Debt as a share of GDP has doubled in 15 years. And people are really worried about what is going to happen with the debt. Ross Perot, and this is Ross Perot.

[B]

On, you know, showing bar charts of this exact thing.

[A]

Yeah. So how big the debt was getting as a, as a size of our economy. So keep in mind that the economy was also not great during a lot of those years. And we really ramped up spending in the 80s, a lot of defense spending. So it's just like a combination of like, well, this is not like we are not seeing good income growth. That affects the bottom line. We're spending a lot of money on defense. Also affects the bottom line. And the economy is not necessarily growing the way that it would. And in the mid-90s, not only did Congress drastically cut spending, like ending welfare and doing a bunch of other cuts to balance the budget, the US into surplus, but we also had a super strong economy at the end of the 1990s and a lot of people went to work and started paying taxes. So we had this period of booming tax receipts, cut spending. We had a surplus and we were paying down the debt not just because we were growing, but because we were putting some of our surplus to the debt. And so when we get to 2001, the US debt as a share of GDP has fallen, it's gone down like five points. But it's on a downward trajectory and the trajectory is crazy. So the Congressional Budget Office estimates in 2001, this is towards the start of the year that within eight years on the trajectory it was on of like it was in a budget surplus, the economy was growing. Well within eight years the US debt would be zero, which is incredible. And a lot of people would tell, but no spoiler, that did not happen. But this was considered this like shining moment of us like fiscal and budgetary policy that we had gotten to such a stable place. And of course like this poisons politicians because then it's like oh you mean we have money to burn and you wouldn't find, I mean you're not going to find an economist that says our debt needs to be zero. And in fact if you were to poll economist of like what does the US debt need to be to be at a stable level? Like they wouldn't come up with a number. They couldn't even come up with a number of like what is debt relative to GDP? That's really, really bad. About 15 years ago two economists tried to come up with that number and they were and be and we were like skewered of like this makes no sense. They said 90% of GDP and people were like no.

[B]

Well did people say no because they thought it should be higher or lower?

[A]

They just said like the number was a totally artificial threshold. And to say like there's some limit to how much debt can be as a share of the economy doesn't make any sense because it's not the. Even if like the number of the debt size doesn't matter as much as the size to the economy, the debt itself does not have like a clear and obvious effect on the economy in a negative way. It's really depend on how it's managed, what it's for, like what directions it's going in, how much borrowing cost are. Like there's so many things that would make debt bad that matter more than just like 90 versus 91. So even those economists are would say like yeah, we had a threshold but a threshold doesn't make sense. So in this moment in 2001 where we have a budget surplus, where the US is paying down its debt rapidly, where we're going to be a debt free country, we take a hard turn in the other direction and we are now at 120% of GDP as part of our debt. And you are starting to see these downgrades in the US credit, which would have been unfathomable 25 years ago, that our debt has been downgraded three times, and we are now on a trajectory that you can't get anyone to defend and say that we're in a good place. So we went from in a really good spot to not in a really good spot. And we did it really quickly, and.

[B]

People voted for it. I mean, let's face it. George W. Bush ran on tax cuts.

[A]

He ran on tax cuts, and he.

[B]

And he gave us two right away.

[A]

Yes, he did. And then they were made permanent in 2012. Now, the committee for a Responsible Federal Budget, which is a nonpartisan, you know, nonprofit think tank, which mainly advocates for being better about the budget. They have this really fascinating paper where they look at the increase in the debt from 2001 to 2024, and they apportion it out to, like, what does the debt increase due to? And they say it's 37% tax cuts, 33% spending, and 28% recession response. Because recessions are very expensive.

[B]

Mm.

[A]

It's a time when your tax receipts are gonna fall because people lose their jobs, they're not hiring as much. Wage and income growth slows. Investments often don't pay off. So you're gonna hit to capital gains as well. And you need to send money to help people, and you need to prop up things like food stamps and unemployment insurance. You need to send money. State governments, automakers.

[B]

I mean.

[A]

Yeah, automakers. Yeah. And state governments can't borrow. And so a lot of the times the federal government in a recession is sending money to state governments to keep them from, like, closing public schools. So it's an expensive time for the federal government's perspective. And the two worst recessions since the Great depression happened in 2000. The 2008 financial crisis recession and the pandemic recession, they were both the most, like, catastrophic and the most expensive. So that's a hit. And that would be all. The COVID response would be grouped into the pandemic recession response. 28% just comes from, like, this is the cost of doing a business. You are a big government that can borrow, and you oversee a cyclical economy. Recessions are going to affect your bottom line. The next category of 33% for spending. It's kind of wild to me how quickly things fall into the rear view. But we did fight two wars.

[B]

Yeah, we did.

[A]

Yeah, we did.

[B]

And then they were not cheap.

[A]

And they weren't cheap. No. So they probably. There's not a single consensus, because how do you pull out defense spending from specific wartime spending from two different engagements, one that lasted 10 years and one that lasted 20 years, roughly. But I think the best estimates is that each of those wars in Iraq and Afghanistan set us back two to $3 trillion.

[B]

Yeah.

[A]

And then the other big spending is that we expanded Medicaid and we created Medicare Part D. We did that in the early 2000s.

[B]

Yeah.

[A]

So we expanded the most expensive program in the U.S. medicare. Medicare. We fought two wars to the tune of several trillion dollars each, and we passed four tax cuts, and that is what happened to our budget.

[B]

Right. Not feeling optimistic yet?

[A]

Not feeling optimistic yet. Yeah. I mean, it's a little embittering of just how much money the US government has burned through in two decades with not a ton to show for it. And in fact, you know, I won't say that the debt is neutral, but I think it's more neutral than people let on. Like, certainly in your life, debt is not neutral. Like, personally, you are not the US Federal government. You don't issue your own currency like your debt. And the government's debt is very different. And so I think people have a hard time separating that. That as it functions in a large economy, the U.S. debt is much more neutral than how debt functions in your life as a borrower.

[B]

Okay, explain what you mean by it's neutral.

[A]

It's not like, bad, okay. Like the US is. It's not like if the debt was 10% of GDP or 20% of GDP, this would, like, the economy would be like twice as bad.

[B]

Okay, so it's not linear or.

[A]

Yeah, it's not linear. And it's not necessarily a bad thing. I mean, like, think of a recession. The debt is amazing because it lets the federal government, quote, unquote, proverbially borrow from future growth, but actually borrow from people to prop up the US economy to keep it from getting smaller. That is an incredible role for debt. Like, debt is great because it gives us the ability to maneuver around these big crises. Debt is also great. It's really hard to pay out of pocket for a highway system, but I think that system is going to pay off. So if I borrow and put a highway system on my credit card and then I get a national highway system, I can make that type of sweeping investment because I have the ability to borrow. So just.

[B]

Okay, so I think I misunderstand. I mean, you're saying debt as a concept or debt in general is a useful tool. It's a neutral tool as opposed to the national debt that we are facing at this Moment and the size of it right now.

[A]

What makes this debt so concerning is that almost all of it is financing current consumption.

[B]

Yeah. It's not investing in something that we believe is going to pay us dividends in the future.

[A]

I say this, a lot of people have grown up believing or being told that tax cuts are like the greatest economic policy. They're a salve to every wound. But truly, most tax cuts are like taking money and throwing it into the wind. And it's because they're very ineffective economic policy because you can do with it whatever you want.

[B]

Meaning individuals, like the individuals pay $800 less in taxes. But there's no focus for the way that money gets spent.

[A]

It's just, yeah, you might consume it, you might save it, you might not notice that it's there. It might go entirely to one purchase, to 10 purchases to hire. Like, it's so expensive to give 300 million people more money and you can't tell them what to do with it. So it becomes both expensive and very untargeted, ineffectual economic policy. Because to be a good economic policy, you have to like focus the money towards the person who's going to act or the agent that is going to act in the way that you want. If I gave you $10,000, I'm just saying I don't know what you're going to do with it. And from an economic policy perspective, that's no, I need to know. Like, if I'm giving you money, I need to know what you're going to do with it. This is why almost every program that goes to low income people isn't cash. It's. I'm not going to give you cash. I'm giving you a voucher for food. I'm not giving you cash. I'm going to give you a health insurance plan. I'm not going to give you housing. I'm going to give you a voucher for housing. Like, I need to know that you're going to spend on the way that I want. And some of that is very paternalistic and some of it is just because I'm trying to direct the investment to a specific place. So tax cuts for 37%. I mean, I don't know how much we can really show for all the money that went to Iraq and Afghanistan. But like, man, do we not have a lot to show for the tax cuts. And I should tell you that that is the official opinion of the Congressional Research Service, which is the research agencies. Yeah, yeah, they looked at the 2017 tax cuts. And they did like an eight year retrospective that just came out that was like, look, we looked at every single paper from every economist and think tank that said this tax cut did something. And it is really, this money was absorbed into a full economy.

[B]

It was just, it's like water, Water spread out over a floodplain that just, and then just didn't change anything.

[A]

Yeah. I mean, it was pouring down rain and you, you know, we're firing the hose off your roof.

[B]

Yeah.

[A]

The role of the national debt is that it gives the federal government wiggle room to do all kinds of economic investment things that we need to do and that we need to do. There's no, like, number or threshold where debt goes from good to bad based on its size.

[B]

Really? So you don't think that this situation with the, with the interest rate payments is, I mean, that's what's concerning to me.

[A]

Yeah, yeah. So what Robin is explaining is that what Moody's brought up in their downgrade is that the interest payment on the debt. So I, I, you loan money to the federal government, it's at an interest rate that you was determined at sale, and then they have to pay you back interest on that debt, just like you have to pay interest on your mortgage or on your car or on your student loan. Well, those interest payments that the federal government has to pay are becoming a larger and larger share of total spending.

[B]

Right.

[A]

Where at the pace that we're at now, by 2035, interest payments will be a third of the U.S. government spending.

[B]

Yeah. And isn't it already $1.07 now? Something like that.

[A]

I thought the last I checked it was like 15%.

[B]

Yeah. That would be about $1 out of every seven.

[A]

Yeah. Oh, look at us.

[B]

Look at me doing the math in my head.

[A]

Look at you.

[B]

Yeah.

[A]

I mean, we pay a lot in interest and that number is getting higher. And so this is the difference of did we spend it on the right things, did it lead to economic growth and what is the trajectory? I think that's what makes the conversation about debt much more nuanced than I think people realize is that it is like a multidimensional positionality.

[B]

3D chess.

[A]

It's totally 3D chess, because on the one hand, it's what we spent it on. Right. Saving the US Economy during crippling recessions. Good. Very good. Lowering the estate tax, I would say, not getting a lot of bang for your buck there, if anything at all. So it's what we spent it on. It is what we were able to sell it for in the bond market. And then it's kind of where the relative position of the US is going from more debt or less debt. So each of those areas have problems, with the exception being that the bond market has basically always been in support of US debt and we do not have a hard time selling it.

[B]

Didn't yields just go shoot up like a half point in a month up.

[A]

Until January of this year? Like we go and sell debt, we don't even really have to sell it for that much. Like if it was. If people really didn't trust the US government, the bond would get more and more and more expensive because people are like, yeah, us gotta pay at least 10% before I invest in you. That's not been the case for the most part. People have always given us really good rates and the US is seen as a really safe place to put your money. So what's happened over the past couple of months is that the combination of tariffs and this tax bill have shaken a lot of the bond market, which you should read as people are starting to need more money to take on U.S. debt. Like you need to pay me a higher percentage interest for me to lend the government a small amount of money via a bond. That poses an incredible unsustainability in the.

[B]

Future because most of these are on fixed terms. And so when they come due, if you want to sell more debt, you're going to have to sell it at whatever the current going rate is.

[A]

Yes. See like, so right now and, and like, remember that you live in America and all this information is public so small in a transparent economy. So, so right now, I mean you can look up the average debt interest rate in the US and it's, it's just over 3%. I think it's like 3, 3. Last year it was around 3, 2. But like, I mean one thing about borrowing our debt is like the interest that we currently owe is not that high relative to, but treasury yields now are above five. Right. So that means that like we borrowed more cheaply in the past than we will in the future. Yeah, I mean this 3D chess of debt and how people feel about it is what gives a lot of credence to things like modern monetary theory, AKA mmt.

[B]

Oh, I didn't know. I didn't see this coming. Yeah, you're gonna want to sneak that in.

[A]

Yeah, well, I mean the idea that, that the debt being too high would become problematic is something that is at the core of MMT theory, that there is no point to reach. MMT has a Lot of implications. It has a lot of followers, it has a lot of fans, and its chief advocate right now, Stephanie Kelton is a very smart economist who has an answer for anything that I might say about it. So if you've read her, you'll be like, she would say this. I know she would say it. But the central idea of modern monetary theory is that the US can't default on its debt. It issues its own currency and it borrows in its own currency, the US dollar. So if it ever had a debt situation that it couldn't face, it would just print more money and pay off the debt.

[B]

Wouldn't that devalue our current currency?

[A]

It would increase inflation and increase inflation. So if you take that as like the central anchor, it makes deficits a lot less problematic. And so it's become, I think, something that a lot of liberals have gathered around because it gives kind of a macroeconomic support for having big government spending. And what's interesting is I think that if you look at recessions, this is exactly the type of intuition we apply during recessions, that investing in the economy is more important than paying off our debt, especially when the economy goes south. And so you give the economy preference over deficits during a recession. MMT is kind of like giving the economy preference over deficits with a broader brush. The problem with that is that it could lead to inflation. And the kind of pushback from MMT ers would say, you know, if there is inflation, you would just have more fiscal control, like you would raise taxes, which is the fiscal policy for dealing with inflation. I get asked all the time, what do I think about MMT and do I think MMT is good? And I think my biggest problem with it, and I think it's something that might not be obvious to a lot of people, is that MMT kind of replaces our current monetary policy in the role of the Federal Reserve with a lot of fiscal policy in the role of President and, or Congress. And I just think that you can't look at the past 20 years and make any kind of argument for Congress and the President being good fiscal stewards. That's probably like my biggest hesitation with MMT is like, I mean, I love big government policy, but I don't think that changing monetary policy to be fiscal policy to remove kind of downplay what the Federal Reserve can do and put it all in the hands of Congress will lead us to a good place. Because I just don't think Congress is very good, especially at long term things.

[B]

Can you explain the difference between fiscal Control and monetary control.

[A]

Monetary policy is interest rate and money supply policy that comes from the Federal Reserve, an independent central bank that the President doesn't really have a lot of control over. And you kind of know it because Trump is pretty pissed off. He doesn't have a lot of control over it. Fiscal policy is policy that comes from the federal government, mostly Congress, because Congress has the power to tax and spend. So in a recession you would have monetary policy that the Fed lowers interest rates and it kind of puts money into the economy to get people to spend it. And then fiscal policy would be Congress sends you a check. Congress increases unemployment benefits, increases SNAP benefits, makes SNAP easier to get so more people can buy food. Congress sends money to state governments. When Congress does something, that's fiscal policy. When the Fed does something, that's monetary policy, it's really about the actors. So MMT kind of switches a lot of the action to the fiscal side. Yeah, the Congress side. What is it, 535 person clown car side.

[B]

Exactly, versus the guy who won't even crack a smile during a press conference side.

[A]

Yeah, to be fair, MMT really took off as like a very appealing theory for dealing with the world right after the Great Recession when the financial crisis was really shattered faith in institutions, including central banks, when the policy making ability of the central bank was limited by just how awful the economy was doing. There was so much concern with our banking system that this approach of like, we should just put control back in the hands of government and we should use all this money to like give everybody a job had much more appeal than it does right now. When the central bank is now seen as like a stalwart of our economy and is of like holding up integrity. And it's Congress where you're like, oh my God, what are you doing? If the risk to MMT really comes down to inflation, how well do you think Congress will be able to handle it versus how well do you think the central bank will be able to handle it? I mean, I think this last bout of inflation that we had has shown that the central bank had nerves of steel relative to Congress and the President. But I understand the appeal of mmt. I guess on some level when people bring up MMT to me, I say, I don't think we need an alternative theory for dealing with the macroeconomy and borrowing and currency or anything like that. Our current system supports amazing investments. We have not chosen to make them. MMT would have more appeal to me if I thought our system didn't support the investments that I think are necessary. Our system absolutely supports it. We just do not have people in Congress doing them, which is very different.

[B]

All right, so to get back to the question of the debt and how you're going to make me optimistic about our situation and standing to the debt.

[A]

Debt, Yeah.

[B]

I have lived with growing debts, national debt, my entire adult life, but only recently really did start to feel. I mean, by recently I would say the last 10 years, where it just seemed like the tax cuts just keep coming in and the revenues don't. And I, I just wonder, like, well, what would be the downsides or what would be the risks or the harmful effects of just continuing to grow the debt?

[A]

Debt. At some point, our borrowing cost would get so high it would crowd out spending on other things and it would force drastic cuts to Social Security and Medicare. Medicare first.

[B]

Yeah.

[A]

So the consequences accumulate the more we are spending on our debt.

[B]

Right.

[A]

You can grow your way out of this problem. Some people will tell you that you can kind of inflate your way out of not all debt, but you can. Inflation actually makes the debt cheaper. So some people will say, like, you know, we've had such low inflation for the past 25 years. This is the recent episode with standing. That's one reason why the debt is getting so high. And it's been easy to borrow. I mean, interest rates have been so low. Like, the debt we acquired when it really went high was also really cheap.

[B]

So nobody. So nobody was terribly worried about it because it was so cheap to borrow.

[A]

It was so cheap. Like, I mean, that's the thing. Like, debt is a side of gdp. Debt relative to GDP is one measure, but I mean, debt relative to the interest rates you're paying on them is another. And a lot of this debt was accumulated during periods when, like, the interest rate was so low that, you know, it wasn't free money, but it was a lot closer to free than like 5%. So it's. Yeah, there's nuances here. What I would stress about the national debt kind of as a basis for optimism is that it doesn't afford a lot of room for bright lines or blanket statements. And I think some of the optimism has to come from knowing that the nuanced picture has a lot more light than the black and white one. Like, if you just looked at debt to GDP in our. What our debt looks like, you would be like, our country is over. Had a nice run, but blew it all on tax cuts in the end. Like, couldn't just. We just couldn't do it. But which I think is, that would be really disheartening. But if you, if you think like, all you have to do is be like, okay, hang on a second, a lot. This debt was really cheap and we can pay it off. And also, like, we've voluntarily reduced our income to an incredible degree. I mean, the 2017 tax cut was really unpopular and the one that they're passing now in the middle of the night in closed door hearings that people fall asleep, also really unpopular. So like, keep in mind that a lot of the debt represents the country being taken to a place it doesn't want to go.

[B]

Yeah.

[A]

And then, yeah, we can be blamed for voting for short sighted politicians. But like, like, it's not as if America doesn't have a sense of like, I don't like this, like, this is where the money is going. And so I take optimism from the nuance, I take optimism from the potential and from, I'm sorry, I mean, look, we raised so much money. I mean, yes, our debt is crazy high. If I tell you debt is $36 trillion, it's like, okay. And then also like, be sure to call 911 if you're having, like, if you're, if you're feeling heart palpitations. Like, you know, like, I understand that that's a scary number. But of course, like our economy is $30 trillion. Like it's a big world and we, we make a lot of money and we. I would be so worried if the US economy has not grown consistently for 50 years or 100 years for that.

[B]

I know. And it's still growing.

[A]

And it's still growing. And like, if we have a recession, it'll be a blip and like, we'll go back to growing again. And so we, we have all the conditions necessary to pay down our debts.

[B]

If we choose to.

[A]

And if we choose to. And we have the policies in place to pay down our debt if we choose to. And I think that the world in which we do pay down our debt is not even paid off to zero. But remember, it's not just where you are, but what direction you're going. I think that we could pretty easily change the trajectory of the US fiscal situation so that the debt is falling as a share of GDP. We're not living in the world of $2 trillion deficits. And we have all the nice things that I want, like childcare in school lunches and Social Security for days. Like something, I mean, so we don't have to pay.

[B]

You're kind of saying we don't have to pay off $36 trillion in order to get child care before we get. Okay, that's. Yeah, that's optimistic. Okay.

[A]

Yeah, we do. It's not like we have to get. It's not like. It's like, hey, guys, so this sucks, but we actually can't have universal school meals until the debt gets to, like, 25. Like, it doesn't work like that. As long as we're in a place where we're moving in the right direction. Right now, we're moving in the wrong direction. That is the most concern. Concern. We are moving in the wrong direction. If we're moving in the right direction, we get to have nice things.

[B]

Right?

[A]

And the right direction is fundamentally and frankly, easily achievable with a few different policy decisions. And I think what. In some ways, this whole circus of this tax bill, the big beautiful bill, I didn't realize that's its official name in the House, is the big beautiful bill. I saw an amazing Onion article about, like, Republicans come to blow about whether or not the bill is beautiful or handsome. And I. I just. I was like, yeah, y' all. Like, part of me is like, let them do this. Like, it's almost like children who are, like, screaming for ice cream before they go to bed. And on some level, it's like, you know what? I told you, if you have ice cream at 11pm after crying for 45 minutes, you're going to throw up. But you know what? You don't believe me, and I have told you this. And so you know what? Take your sixth scoop of ice cream and throw up and, like, then we will move on. Because you don't seem willing to listen to me, that you can't have any more without making yourself sick. So by all means, have it. Make yourself sick. And then, like, then we can move on with our lives. So this tax cut, like, y' all, it can't exist in 10 years. In 2035, a third of US spending goes to interest payments on the debt. That will not happen. Something will have to change. So this tax bill is like, them being like, well, we're not gonna. And it's just like, okay, well, when the adults take over, I guess you're.

[B]

Much more optimistic that there are adults to take to take over.

[A]

I think so. I mean, the textbook.

[B]

Do the adults want to run for office? I don't know that they do.

[A]

America wants to be in a different place. Our leaders, our currently elected leaders are not taking us there, but they don't last for forever. And you have, like, y' all we got, like just more than a year before we get a chance to do this again. And like, I don't know. I think people lose faith in the electorate, they lose faith in their leaders. And there are parts of this process that are really broken. But Americans don't want debt to be in a bad place. They don't want US credit to be downgraded. They want to be more responsible. And I do think that this is an area where Americans are much more passionate than you probably realize. And so we have the money, we have the big economy, and we know what we need to do. And yeah, you could say that possibly the electorate is fighting it like a toddler as much as Congress is. But we will get there. We have to. The alternative is that we cut Social Security in Medicare and don't have a Department of Defense. So we will get there. I don't think we'll get there early. I think we'll get there close enough to on time that we tell people, don't say technically we're late. I call it pediatrician on time, meaning that I showed up at all, you know, like, I got a three year old and a one year old in a car and got here on the day you wanted me to come, so I came on time. This is where America is right now. We have the appointment. Children are crying. Somebody has decided they don't want shoes. Somebody else got water on their shirt. They're taking their shirt off. However, there are cars in the car. There are car seats in the car. The go bag is packed. I have diapers with me. We are gonna fucking get there. I don't care how many shoes I.

[B]

Have to put on.

[A]

We will get there. So that there just be. It could be so much worse. Or, you know, it could be so much worse is all I'm saying.

[B]

Look at this economy. It could be so much worse.

[A]

Hey, you know what? You gotta take it sometimes people, that's a spirit. But says the debt is large, so it could be worse and we want to be better. Is optimistic. But, man, I put on like a clip on social media. We deserve to be optimistic. And I mean, y' all. The first 10 responses were like, nope. Rich people own this country. There's no hope. I'd believe you if they didn't require like prison, slave labor. And I was like, why do you follow me? I put up something that says, let's be optimistic. And the first comment's like, shit's bleak. Maybe, maybe, maybe you're not clear about what we're trying to do here. Oh, man. Oh, man. One of the more common comments we get, not just, you know, shit's bleak, don't be optimistic, is y' all sound like a superhero team. I think because we sound like Batman and Robin, because we're Catherine and Robin. And so that's the other thing we get on TikTok. So those are the two things you're missing from TikTok.

[B]

Oh, Jesus. Yeah, thanks. Thanks.

[A]

So on that note, the debt will be better one day and none of us will understand it even then, but you'll be less scared of it, I promise to you.

[B]

No, I feel like. Okay, you know, I have a slightly different perspective on the debt now that if we can get it going in the right direction, you know, if we stop burning through our home equity line of credit it and just start making regular payments on our mortgage, we can buy a car.

[A]

100%.

[B]

I know that personal finance is not the best metaphor for this, but it does kind of help me, you know, think about, like, what it really takes just to turn. Just to turn the ship around a little bit and get it just going in the right direction.

[A]

Direction is like 75% of the problem, and so that means it's 75% of the solution, which is great because changing direction is a lot easier than paying off our tail. It.

[B]

Yeah.

[A]

Okay, great. I'm glad you feel a little bit better.

[B]

I do.

[A]

All right, so executive.

[B]

Yeah.

[A]

Yes. Pallet cleanser executive orders. Although I don't know if it's actually going to be a pallet cleanser for me, so you go first.

[B]

I don't know that mine's a pallet cleanser either.

[A]

Yeah, yours is quite serious. Why don't. Okay, why don't you go first?

[B]

All right, so my executive order comes from Aaron in Portland, Oregon. I thought this was actually really smart. He says all homes must include. When you sell a house, you have to include earthquake, wildfire, flooding, hurricane, et cetera. Risk disclosures. He says, you know, home risk disclosures are all over the place. They are required in some states and not others. And even then, when you get a disclosure, it's really about whether you're in a hazard zone and some sort of defined hazard zone. It doesn't take into account maybe things that people have done to a house to make it less prone to risk. Anyway, he said, this is all insane. People really didn't know what they're buying in terms of not just four walls, but what the actual risk to it is. Yeah, I'm for it.

[A]

I love it. Good Job. Good job, Aaron.

[B]

Nice job, Aaron.

[A]

My executive order is I just consider my optimist audience to be a safe space. I think that everyone's social media comments should be entered into a repository and printed out and sent to their neighbors every year. And if you are the type of person that will casually trash someone on Instagram, Instagram, like your friends and family, and you know what, maybe even your employer deserve to know it. I've been on social media for a while. I find it incredible to talk to people and hear from them and talk in and explain things and hear their reactions to it. You know, one being like, this show is totally an outgrowth of me going on TikTok and people on TikTok saying, you should have a podcast. Like, I've been so changed for the better by it. But, like, it will never cease to amaze me, the casually cruel things people will drop into a comment. Yeah, part of me is like, would you say this in front of your mom? Like, if your wife was sitting right next to you, would you make this comment? One that I got recently, I always get worse comments on the Bloomberg Post, but one that I got recently was, you know, typical Ivy Leaguer, and I was like, my brother. I went to so much public school. I mean, from kindergarten through basically grade 21, which is the end of the PhD. I was at a public school, public university, public PhD. Like, public all the way. Like, you can say, you can throw a lot of shade my way if you disagree me, but do not accuse me of going to private school. I find this insulting to my core. And he's like, well, if you're a big government liberal, you're the same thing. And I just had to put down the phone. And to all the people who make nice comments, I appreciate it. To the people who make hurtful, misogynistic comments, or Jesus accuse me of going to private school.

[B]

No, Ivy League.

[A]

Specifically Ivy League. I mean, I guess on some level I was like, all right, I'm giving off. I paid half a million dollars for my education, so I don't know if that's good or bad, but I guess I seem smart. I guess this is going against the optimism. Where we left the show earlier, we did say it was a hard week. Okay, let's get to the actual palate cleanser of spiritual sponsors.

[B]

Okay, you want to go.

[A]

As you know, on this show, if you've been listening for a while, we don't have actual sponsors, but we do have spiritual sponsors that keep us going even in the hard weeks. Like this One. Robin, who is your spiritual sponsor?

[B]

Well, I wanted to say that this week we got three of spiritual sponsors through substack.

[A]

Oh, my God.

[B]

So I have reached out to all of them, but I heard back from one who said that I could use her name, name that says so our spiritual sponsor this week is Shannon Key of Huntsville, Alabama, who sponsored us on substacktimisteconomy.com.

[A]

Aw, thank you, Shannon. My spiritual sponsor this week is really fun. Friend group chats. Like, not all group chats. Yeah, not all of them end up in a good place. You know, they maybe they go dormant or maybe like someone says, like, we should plan a vacation and then like, no one ever responds to the chat again.

[B]

Did you read that story?

[A]

Yeah, I did. Yeah. I mean, I think, I think, I think you got to use it judiciously. But I, I have had a friend group chat going since the pandemic and it is just, it is such a delight. So that group chat is my spiritual sponsor this week and anybody out there who has a really good friend group chat that wraps it up for this week. And we, we struggle sometimes to be optimistic too. But honestly, I feel better after recording.

[B]

So I do too. Thanks for always for listening. And you can always reach us at optimisteconomy.com or email us at optimist.eacreymetermail.com we always love hearing from you.

[A]

And we close our show by thanking our producers and audio engineer, Sophie and our producer and video engineer, Andy.