Margaret Thatcher famously said the problem with socialist governments is that, “They always run out of other people’s money.” Unfortunately, that’s true for almost all governments. Even more unfortunate, though, is that some people refuse to believe that government can ever run out of other people’s money.
Some people claim, for instance, that the government can continue to borrow and spend (and should do more of both since interest rates are currently low) since the national debt is not a problem. Take, for example, Matthew Yglesias, who writes about economics for Vox. He famously said (and repeats far too often) that, “the U.S. government can never run out of dollars. Unlike you, or the company you work for, or the town you live in, the federal government prints dollars.”
Unpacking the economic ignorance embedded in that claim would take all day. So let’s set aside the question of how the government will be able to pay off the debt in the future and focus instead on the part of the debt the government pays right now: interest.
How does government pay that interest? The answer, of course, is with “other people’s money” (i.e., taxes). Interest on the debt is paid out of the tax dollars that are taken from the American people. That is money that comes out of our pockets today to pay for money we borrowed in the past. And it’s a lot of money.