Today’s Washington Post ponders Alan Greenspan’s
legacy. One of the likely negatives of
that legacy, according to Post reporter Nell Henderson, is the debt that
Americans accumulated during Greenspan’s 18 years as Chairman of the Federal
Lots can be said on this topic. I limit myself to dealing with one issue:
what is the meaning of “American debt”?
First of all, Uncle Sam’s debts — government debt — can fairly be said to be the collective
obligation of American taxpayers. This
fact is so, however, regardless of the nationality of Uncle Sam’s creditors. What difference does it make if
Uncle Sam owes none, some, or all of his debt to non-Americans? I suspect that most people suppose that it’s
better for Americans if Uncle Sam’s debt is held by Americans. But I don’t see why the nationality of Uncle
Sam’s creditors matters.
Secondly and more importantly, now consider private debt – say, debt issued by the Ford
Motor Company. If I’m a Ford
shareholder, I’m responsible for paying part of this debt. But if I’m not a Ford shareholder, I’m not
responsible for paying any part of this debt. The fact that Ford is incorporated in America, is headquartered in America,
and has many of its operations in America does not mean that Ford’s
debt is “American” debt. It’s Ford Motor
Because I own no equity shares in Ford, I have no obligation
to service any of Ford’s outstanding debt. The fact that I’m an American does nothing to change this fact.
But that part of Ford’s debt held by foreigners is
classified in the data and spoken of in the press as “American debt.” One implication of this description is that
every American is burdened by such debt. Another implication is that if this debt were held by Americans (rather
than by foreigners), this debt would be less troubling.
Both implications are wrong.
Although I’m an American, because I’m not a Ford shareholder
my indebtedness doesn’t change as Ford goes more into debt or less into
debt. So why should I worry about this
debt? I shouldn’t worry about it – and I
don’t worry about it.
Such debt is the concern of Ford’s shareholders –
non-American shareholders no less than American shareholders. If Ford’s debt is too big a burden for that
company, Juan in Spain and Jae in Korea who own Ford shares should worry. But
Don in America, who doesn’t own Ford, shouldn’t worry.
Classifying that part of Ford’s debt that it owes to
foreigners as “American debt” is mistaken and misleading.
As for implication number two, Ford’s debt is good or bad
for that company regardless of the creditors’ nationalities. If Ford uses its credit wisely and if market
conditions are favorable, then Ford’s debt enables that company to become more
productive and profitable. Its creditors
will be repaid, regardless of where they live. If Ford uses its credit unwisely or if market conditions prove to be
unfavorable, then that company suffers and, probably along with it, so does its
creditors – regardless of where they live.
The more I think about international economics, the more I’m
convinced that discussing it in terms of countries causes much too much