Reply To: Why is government debt bad?


There is also the issue of crowding out. Government spending can only come from one of three sources: taxation, debt, and money printing. Taxation is economically inefficient, and diverts resources away from their most productive use to less productive, politically favored uses. Debt does much of the same, with the added penalty of interest, as discussed above. Money printing will also do this by creating inflation.

In other words, if the government “borrows” a million dollars from an actual person, business, or foreign government, that million dollars is immediately gone, and transferred to an entity (the US federal government) that is likely to spend it on less urgent needs than what it would have otherwise been spent on. That alone is a problem with government debt, regardless of whether it is ever actually paid back or not.