Do We Owe Money to Aliens?!

James Franco is asking all the right questions, who says Hollywood can't get political.

Worse than the Decepticons, we owe ourselves. More specifically, we owe our future selves. Governments owe other governments, companies owe banks, and individuals owe their mortgages. All told, we’re now $233 trillion in the hole.

This isn’t necessarily a bad thing. Take your movie, The Disaster Artist. Your $10 million production budget, financed through debt and loans, made you a movie that grossed $30 million and earned you a Golden Globe for Best Actor. Unfortunately for us, we’re more the proliferate spender you portrayed than we are you and for the life of us, we can't pay off our debt.

Economics is relative. Typically, that means the big numbers aren’t as bad as they look. Debt is the exception. When you posted that tweet, global income was $75T, making debt about three times our income. Eight years and COVID later, that number grew to 333%. There must be a reason for this. After all James, you’re just an actor; rest assured, our politicians know what they’re doing.

There are three theories that justify government debt issuance: TLDR: The debt isn't rising for accepted justifications.

1) Tax smoothing. When 2007 happened our government needed money but raising taxes would have hurt too much. So instead, they borrowed, pushing our tax into the future, when we'd be in a position to pay it.

2) Safe Asset Provision. Governments borrow at better terms than the private sector. So when private markets are distressed, it can be optimal policy for governments to issue debt. In this way, they provide safe assets and much needed liquidity to constrained borrowers.

3) Dynamic Efficiency. Looking into the future is hard for anybody, especially for companies focused on maximizing shareholder value. When the private sector underinvests in long-term projects, like infrastructure, government can invest in these public goods via debt issuance.

In different ways, our actions violate all three cases. In the least shocking news ever, the theory most consistent with our behavior is a scenario of political infighting, self-interest, and instability. This is what we’re paying $34 trillion for.

So, James, go make The Interview 2 and help us grow our way out of this…who am I kidding, Taylor Swift are you ready for another tour?

Pulling forward earnings is when the government spends future income today. It might seem strange when parents borrow from their kids, but for governments, it’s business as usual.

We're the problem. Level 4 and 5 countries have increased their debt levels from the lowest in the world to the highest. This trend suggests a pattern: sometimes, we stumble as we level up. On Level 3, countries face more traffic accidents and toothaches as vehicles and candy are introduced for the first time. Similarly, massive debt loads appear when credit enters the equation.

Age pyramids are supposed to look like pyramids, but ours resemble unstable Jenga blocks. An older population means entitlement spending will consume a larger share of our remaining income, while our tax base remains relatively small.