The United States in a debt binge – role model for the rest of the world?

Dear Mr. Lingens /Austrian Author and economist/, I don’t know if you are doing well to sing the praises of the beauty of debt while comparing little Austria with the big US. Remember, since about the 1990s, not only the whole world, but also many Americans are beginning to talk about the decline of their country (and the most clear-sighted observers of the U.S. are still to be found in the US themselves). Pretty much at the same time – only a decade earlier – the U.S. national debt spiral gets out of control. The decline is obvious:  The education system is decaying (even at universities and in industry, research is predominantly done by immigrant or recruited Asians), the infrastructure is in a state usually found only in Third World countries, the outsourcing of a large part of the industrial base has made a minority immensely rich while the majority has become relatively poorer. And this in turn fuels social disintegration, some even speak of a drift toward civil war. If the national debt grew even faster under Trump and now under Biden, that is certainly no model for Austria. It only shows what a state is forced to do once it has allowed such a gap to develop between its own citizens (especially if further deepened by a pandemic).

There is yet another reason why the US can hardly serve as a role model for Austria. With the dollar, they own the world’s reserve currency, which allows them to settle their debts in their own legal tender. Even more important: they are masters of the largest military machine in the world. No state, not even China, their largest creditor, is able to force them to repay their debts. But, of course, this unique privilege applies only to the United States. In other words: Quod licet Jovi non licet Bovi. Austria – and even Europe – are quite powerless by comparison. They can very well be brought to their knees by powerful states and the capital market – the euro crisis has given us a foretaste of such a perspective. Certainly, debt can make a great deal of sense – both for governments and for individual companies – provided it generates the growth with which it can subsequently be paid. The rise of the former world power England and the coming world power China proves this truism. But no magic of a so-called »financial account  mechanics” that you, Mr. Lingens frequently invoke, will give this recipe eternal validity. In any case, the number of sovereign bankruptcies due to over-indebtedness is many times higher than debt-induced successful growth. The roughly thirty-year rise of debt in the U.S. and this country’s simultaneous decline cannot encourage anyone to disagree with this fact.

Or has the U.S. helped its education system with its inexorably rising debt burden? Did they renew the infrastructure or bring their outsourced industries back into the country? No, they only further weakened these sectors . What has been growing, especially during the last two decades, is the military apparatus and the gap between rich and poor. If GDP did not fall as much as Austria’s during the pandemic, the suspicion arises that this difference was paid for primarily with debt. The latter may have supported consumption (and thus production), but it hardly caused growth. Debt is not, and indeed never has been, the cause of a nation’s greatness.

Nevertheless, you are right, Mr. Lingens, in a pandemic the state must provide generous help to its people, but please do not make the mistake of treating an emergency measure as a virtue, let alone a miracle cure – supposedly derived from the mathematics of “financial accounting mechanics”!