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Previously, we considered the negative impact that having too much national debt might have on the performance of the U.S. economy, keeping it from being able to grow as fast as it might otherwise if it were not for having such a large national debt.
But that may be a small cost to bear in comparison to what the U.S. may actually have lost by running up its debt to such a high level: the potential to deal with another large-scale financial crisis in the future.
Think about the national debt this way. Imagine if it were an emergency reservoir of water up on a mountain whose main purpose is to help put out big fires that threaten the American community, but has also come to be used to provide some water service to the community.
We’ve just had a big fire, draining a very large portion of the reservoir’s fire fighting potential as it was tapped to deal with the crisis. So much so that there are now real questions about whether the reservoir would be capable of extinguishing another big fire.
Not being able to adequately deal with another big fire would mean incredibly big losses for the community, should one ever break out again.
Community leaders are split when it comes to dealing with the situation, and have come up with two plans to address it. One group plans to keep draining the reservoir to provide more and more water service for their preferred supporters in the future, which will be partially paid for by increasing people’s water bills – some much more than others.
Meanwhile, the other group’s plan is to stop draining the reservoir over a 10-year period, with the goal of helping it recover enough to be able to deal with another big fire in the future as quickly as possible by keeping future water service as close as possible to today’s levels. Nobody’s water service would be actually reduced – they just wouldn’t get as much in the future as they might have been hoping to get, but in return, their water bill rates would be locked in at today’s levels too – nobody would see them increased over time.
Which group has the better plan to deal with the real risks involved?
Tennessee Valley Authority Raccoon Mountain Pumped-Storage Plant