Inflating Away the National Debt

Federal government debt increased by more than $2 trillion in fiscal year 2022, from $28.429 trillion at the beginning of the year to $30.929 trillion at the end. (The fiscal year ends on September 30.) One way to lower the burden of that debt is to inflate it away, and that’s exactly what we’ve been doing over the past year. The national debt is, by some measures, less of a burden on the economy at the end of the fiscal year than it was at the beginning.

In dollar terms, the national debt increased by 8.8% in fiscal year 2022, but those dollars were worth much less at the end of the year than they were at the beginning. According to the government’s official Consumer Price Index, the dollar’s value fell by 7.7%, offsetting most of the increase in the debt.

GDP, a measure of the nation’s output, increased by more than 9% in fiscal 2022, from $23.6 trillion to $25.7 trillion, mostly because of inflation. Still, GDP increased by a greater percentage than the national debt.

At the beginning of fiscal year 2022, the national debt was 120.7% of GDP. By the end of the year, it had fallen to 120.4%. By that measure, the national debt at the end of fiscal 2022 was less of a burden on the economy than at the beginning.

We don’t need to pay off the debt when we can inflate it away. I’m not recommending that we do this. I’m simply observing that that’s what we are doing.

Randall G. Holcombe is a Senior Fellow at the Independent Institute, the DeVoe Moore Professor of Economics at Florida State University, and author of the Independent Institute book Liberty in Peril: Democracy and Power in American History.
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