In a previous paper we discussed the fact that the debt/GDP ratio does not measure our government’s ability to pay. So, what is its purpose?”
Some economists still believe that a nation with a high ratio is somehow approaching insolvency in the same way a household or corporation might. But this analogy collapses when applied to a Monetarily Sovereign government such as the United States.
You can see the absurdity of the ratio here, where various nations are compared. As you will see, the ratio has absolutely nothing to do with paying debts or any other conceivable measure of financial strength.
The federal “debt” is the total of Treasury securities, which are dollar obligations payable in dollars the government itself creates. Operationally, the United States never can involuntarily run short of dollars.
T-bills, T-notes, and T-bonds are financial obligations identical to that of dollar bills, which are Federal Reserve Notes (look at the dollars in your wallet.)
Thus, the “debt”/GDP ratio is neither more nor less meaningful that a dollars/GDP ratio, i.e. not at all.
Japan, with one of the highest debt/GDP ratios in the world, continues operating with extremely low interest rates and persistent low inflation.
Thus, the debt/GDP ratio does not measure federal solvency or the likelihood of inflation. Nations with high debt/GDP ratios have experienced inflation and deflation, prosperity and stagnation, high interest rates and low interest rates — the full spectrum.
So we searched for the possibility, faint as it may be, that this much quoted might contain some useful information.
The ratio may partly represent accumulated government-created financial wealth relative to annual spending and production. But you rightly may ask, “Who cares?“
Well, a high debt/GDP ratio may indicate a strong private-sector desire to save, perhaps by an aging demographics, weak private demand, or increasing financialization relative to productive growth.
In that sense, Japan becomes especially interesting. Japan may represent that kind of society, with high savings, low consumption growth, stable institutions, and/or a persistent need for government deficits to support overall demand.
This leads to a striking realization: A high debt/GDP ratio today may beget an even higher ratio tomorrow.
Why? Because if the private sector desires to save more than it spends, the economy may require continuing government deficits simply to maintain income flow and economic stability.
Historically, economics has been built around the assumption of scarcity: scarce food, labor, energy, and production.
But automation and artificial intelligence increasingly challenge those assumptions. AI potentially weakens the ancient connection between human labor and economic production.
For most of human history survival required labor. But what happens when machines increasingly perform the work, physical, analytical, creative, logistical, and informational work? The problem shifts from production to distribution –less on “who does” and more on “who receives?”
Some claim that if the government gives people money they won’t work. This mostly comes from the people who have a great deal of money but apparently still work. The richest man in history reportedly still works long hours. Why, do you suppose?
Modern civilization still largely assumes that the purpose of economies is to maximize production. But that assumption belongs to an earlier stage of development when survival itself was precarious. Once basic needs are satisfied, human striving does not disappear. It changes form.
People seek meaning, admiration, creativity, exploration, mastery, contribution, beauty, discovery, and challenge. The enemy is not the survival struggle. The enemy is boredom. The human species has advanced and our brain has grown, because we are endlessly curious and working. So in the future, jobs still will exist, but they will be more interesting and less physically unpleasant.
A Rolls Royce does not transport a person more meaningfully than a Volkswagen. Beyond a certain threshold, wealth becomes symbolic rather than functional. And admiration itself is rarely granted solely for wealth. Mother Teresa possessed little material wealth, yet became one of the most admired humans in history.
People admire such attributes as courage, creativity, wisdom, perseverance, achievement. Human beings climb mountains, explore caves, write poetry, paint pictures, walk on the moon, and swim with sharks not for survival or money. They do these things because curiosity and accomplishment appear deeply embedded within human nature itself.
Perhaps the fear that people would become lazy in a post-scarcity civilization misunderstands humanity. Children naturally explore, ask questions, build, dismantle, imagine, climb, and discover. Even now, many people’s most meaningful activities occur outside economic necessity.
Consider how many people engage in unpaid or low-paid activities, just for the enjoyment: art, music, science, friendship, sports, philosophy, exploration. Think of all the classes people take, not to make money but for pleasure and enlightenment.
I am ninety-one years old, I still write and paint—not to survive economically, but because the act of creation itself interests me.
The ultimate goal of productivity is not endless production. Perhaps it is freedom.
In that scenario, the true measure of economic success would not be total financial value of output, but the extent to which human beings are liberated from unnecessary survival labor and enabled to pursue meaningful existence.
Artificial intelligence intensifies this question dramatically. AI may become the technological mechanism through which mere survival labor steadily declines in importance. If so, humanity faces a civilizational choice:
We can use automation to concentrate wealth and control while preserving systems built around coercive labor and scarcity. Or we can use automation to increase human freedom.
This may represent the next great evolutionary threshold. Humanity itself may be only an intermediate stage in the universe’s development. Are we just a link in the chain beginning with inanimate atoms and ending far beyond DNA life?
Well, that was quite a trip from the totally useless, but widely quoted, Debt/GDP ratio, to the future of economics and even of existence. I hope you enjoyed it.
Rodger Malcolm Mitchell
Twitter: @rodgermitchell
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MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;
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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 