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Yes, War is Expensive, But Debt is Not the End

September 29, 2010

Today Germany’s war reparations were finally paid off:

The final payment of £59.5 million, writes off the crippling debt that was the price for one world war and laid the foundations for another.

The National Post adds that this should be a profound lesson to the US. Now, I am as worried about the size of the United States’s deficit and debt as most, but I do not find this comparison particularly useful. After all, despite its supposedly crippling debt load the Germans were able to undertake WWII, and then sustain major economic growth and become a leading world economy afterwards. The problem is not how long it takes to pay off debt, but how large the interest payments are, how it affects interest rates in general, and how much it constrains the government’s ability to operate.

To look at another example, there is Britain. Britain only recently paid off its WWII loans, and as the article states, some British debts have been around since before the Napoleonic wars. While Britain of course had its debt problems, the main issue with debt is not the time it takes to pay it off, but the pain paying it off imposes.

What makes the debt a serious problem for the United States is that it is not like war reparations, or even the costs imposed by wars such as WWI. All wars end, and so do reparation payments – the debt is not tied to a constantly growing source. Unfortunately for the US, while some of the debt is tied to current conflicts, much of it will be due to domestic programs and entitlement spending, which do not end and are liable to increase without government reforms. Their constant and increasing additions to the already large debt will tighten the financial constraints on the US. There are a lot of lessons we should be learning from the Treaty of Paris and a lot of reasons Americans should be worried about their debt. But the National Post seems to be overstating their case here.

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