#480 — The Economics of Everything

**SPEAKER_1** (0:02)
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**Sam Harris** (0:24)
I'm here with Noah Smith. Noah, thanks for joining me.

**Noah Smith** (0:27)
Hey, thanks for having me on.

**Sam Harris** (0:28)
You've got a great Substack, which many people will have read. It's Noah Opinion. Pun on your name.

**Noah Smith** (0:34)
Noah Opinion.

**Sam Harris** (0:35)
Noah Opinion. But they can find you, no doubt, under your name as well over there on Substack. There's a lot to cover. You touch many interesting topics, but summarize your background first, and then we'll just jump into your wheelhouse.

**Noah Smith** (0:48)
All right. Well, background. I was originally a physics major in college. Then I lived in Japan for a while. Then I did a Ph.D. in Economics at the University of Michigan.
Worked for a couple of years as a finance professor at Stony Brook in New York, and then quit to become a writer.

**Sam Harris** (1:06)
Yeah.

**Noah Smith** (1:06)
So now I just write about economics.

**Sam Harris** (1:08)
Well, you're good at that.
You produce these very clear articles that walk people through issues of great importance to our society. It's a pity we don't spend more time thinking about some of these issues. I want to raise the first one which you wrote about recently, and I think you've had some change of opinion on. That's the national debt. I don't think I've touched the national debt at all on this podcast. I think maybe I asked Lloyd Blankfein one question about it, and I can't even remember why he wasn't more worried about it. But I really want to walk through this almost in an econ 101 way. But big picture, how do you think we should think about the national debt at this point in the US?

**Noah Smith** (1:49)
The United States is becoming a high debt country compared to other rich countries, and this didn't used to be true. It used to be that European countries were more indebted than us, and Japan was much more indebted than us. And now after the Great Recession and COVID and the lack of spending fiscal restraint that we've had in the years since COVID, we are a high debt country. And this carries with it dangers. Nobody knows exactly when debt starts becoming a problem. There's no hard line. People have tried to define that line and nobody really knows. But at some point, the problems start creeping in.
Private investors start being unwilling to buy the government's debt. So the government borrows money by issuing bonds, right? It sells bonds, some bonds to foreigners, but most bonds are just sold to like banks or regular people even, but mostly banks. And then, US banks like Chase, buy a bunch of US bonds. And then, they sell these bonds and then they pay some interest rate on the bonds. But when these private investors or other countries or regular people or whoever become less willing to buy the bonds, they have to offer a higher interest rate to get people to buy the bonds. And so, the interest rates go up and up and up. But when the interest rates go up, the government has to roll over its whole stock of debt at those new higher interest rates. And when it has to roll over this debt, it has to pay higher interest costs every month, every year, out of its budget. And it has to pay those costs or else it defaults. And if there's a government default, the economy crashes and very bad things happen. So the government has to pay more and more interest each year. So it can do one of two things. It can either raise taxes and cut spending. It can exercise fiscal austerity. Or it can just borrow more to cover the interest payments.
So that's what we're doing right now. We're actually borrowing more and more to cover the increased interest payments because our interest rates went up. You know, partly because the Fed raised interest rates, partly because people are demanding higher interest rates for long-term bonds. We are, the government has to pay higher interest rates now and its whole stock of debt as it rolls it over. And then, so the interest costs per month, per year are going up and up and up. And we're just borrowing to cover that interest too and that's bad because eventually people realize like, wait, they're not going to really pay this back, are they? And then what happens interestingly is inflation. So people realize that what will eventually happen, people might think there would be a default, but more likely is that the government gets the central bank to print money to pay off the debt.