I feel like at this stage in our lives, economics is very abstract to us. We don’t know a lot about it. Honestly, it's ironic that one of the most important things in life, we’ve been taught almost nothing about. Do we actually know what world debt is beyond what our parents and Tik Tok have told us? Do we know money laundering past Shane Dawson’s conspiracy theories and Breaking Bad? I don’t. So I wanted to have a conversation with Dr. Douglas, who teaches AP Economics, and ask him a couple questions that could perhaps help us better understand the thing that makes our world go round.
Let's start with something simple. I mean it’s all crossed our minds. There's no denying it. Why can’t we just print more money?
“That's a complicated question,” says Dr. Douglas in the midst of a chuckle. “If we were to print more money the only thing that would do is raise the prices across the economy. It would just increase the inflation that we see. It wouldn’t make anyone actually richer.” But why is that? More money equals more wealth, right? No. Dr. Douglas continues, saying that an economy's wealth is defined by how much it can produce. “No matter how much money we print that doesn’t change the amount that we're producing.” There's no actual trade or profit to back these meaningless slips of paper.
However, this isn’t something that everyone knows. I mean hey, who hadn’t thought of printing more Kumon dollars when you were younger? Not going to lie, I’ve photocopied them and although that fooled the ladies who were happy to give me a pencil and eraser for my Kumon bucks earned by completing my math packets, it doesn’t work that way when it comes to the actual economy. “Think about what happened in Germany when they tried to get rid of their war debts. They printed a ton of money. And all that did is devalue their currency and lead to hyperinflation,” says Dr. Douglas.
Ok, fair enough. But hey, although this next one is a far fetched question I decided to ask it anyways, because, why not? I mean, if money is a social construct why can’t we just get together as a world and decide to start over and erase all the debt? Don’t laugh at me. It’s a genuine question. Even Tiktok agrees.
“There's a couple different parts of this,” begins Dr. Douglas. “First, let’s take a look at the debt part of this question. Why not cancel everyone’s debt? So the reason we don’t do this is because if you were to cancel debt, we wouldn’t lend money to any country.” This makes sense. Dr. Douglas continues, saying that if we were to take a third world country such as Botswana, and cancel all the debt they owed to us, we as the US, would be less likely to lend money to Botswana, or any third world country for that matter ever again, if we knew that that money could be cancelled at any time. I mean would you loan 1 grand to a friend, if there was a rule that they could just not pay you back if they felt like it?
But okay. Here comes another question. If we cancelled all debt and then no one lended or borrowed we would be able to avoid a future of insurmountable world debt starting up all over again. Right?
No. According to Dr. Douglas, not lending or borrowing is a lot more detrimental and can actually implode the space time continuum. Just kidding. But it would change the world, and not for the better. “Countries need to borrow to be able to finance their everyday expenses, and if we were to cancel all everyone’s debt, the credit system that the global economy works on would no longer function.”
Next question. What is this world debt? I mean, we ARE the world. Who are we in debt to, the aliens?
“We are in debt to each other,” begins Dr. Douglas. “Countries are in debt to each other. For example, the US owes the Chinese government money.” Not only that but governments are in debt to foreign citizens and everyone around the world can buy a US bond and own a piece of the US government debt. On top of THAT, we're also in debt to other Americans and corporations within the United states.
Now you might be wondering, what’s a bond? Like a jail bond? Things bounty hunters go after?
No. As Dr. Douglas says, “When we sell debt, when we need to borrow money we issue bonds. These come out of the US treasury box and we sell the money on the open market and anyone who wants to buy them or is willing to lend us money can buy them.” In short, anyone who’s willing to lend us money, that’s who we are in debt to.
We’ve all seen those signs and jokes about world debt. What is it at? A couple trillion? Every year, like clockwork, it just keeps going up and up. But do we ever need to, or will we ever be capable of paying it off?
According to Dr. Douglas, “That is an issue that is immensely debated by economists. Most economists would say that the rising national debt is a serious issue, but there is a growing number of people that are saying it’s not a problem because you can borrow indefinitely.”
But, as the world debt goes higher and higher we are making our way into uncharted territory. “It may well be that we can borrow indefinitely but if it is the case that we can’t, that for some reason it may throw our economy into a loop, it would be catastrophic in its implications.” No pressure. But I mean, money is just paper right? There are trillions of dollars already that we are in debt. Why wouldn’t we be able to borrow indefinitely?
“The reason we may not be able to borrow indefinitely is the same reason why we can't just print more money,” Dr. Douglas says. “Yes, money is just a number and is a collective delusion, but on the other hand, the whole system is based on this collective delusion and relative, stable values of our currency. We can’t just borrow forever because eventually those bills come through.” He says that we owe more than 20 trillion dollars so that is a large number in the aggregate, but on an individual level the US government can owe you, let’s say 50 dollars, and that amount is payable on a certain date (just like how interest works. I lend the US government 50 dollars and they pay me back 55 dollars in 10 years.) There is a point at which the US government has to pay you back or it will default on its credit which is a huge, huge problem.
A couple days ago, I found a 100,000 Indonesian bill in the trash in my dad’s office. Ha. I was shocked. Clearly this man thinks money grows on trees, right? Well, jokes on me because I came to learn it’s worth about 5 cents. Classic. Honestly, if my money was worth so little in value at that point I would just scrap the system and start all over. Make that 100,000 bill a 5 cent bill. Make it match its worth right? But Is that even possible?
According to Dr. Douglas, “Countries that undergo hyperinflation often do this. Back to Germany, after they went into hyperinflation after World War 1 they eventually just got rid of the mark entirely and put new currency in. Zimbabwe did the same thing when they underwent hyperinflation. Venezuela is currently trying to do the same thing.” However, he explains that that's a lot of work and unless inflation is a major, major issue you actually don’t have to do that.
If you go back 200 years in the US, 20 cents could buy a lot, whereas today it can buy almost nothing. “The dollar values that you put in a price tag go up but it’s not a problem. Prices go up and down depending on the economy. But they’re just numbers and they aren’t tied to reality in the same way that something of an absolute value is. So as long as you know that one value will buy you something of the sort it doesn't matter what the actual number is. In India, as long as everyone knows what the exchange rate is, and is able to exchange it (as you wouldn't be able to do for Venezuela) then it's not a problem.
Okay, now to a more fun topic. We’ve seen the conspiracy theories. Watched Breaking Bad. Money laundering. What even is it? Just stuffing Mattress Firm mattresses with huge amounts of green? Is it tied to inflation? What role does it play in our economy? According to Dr. Douglas, “Money laundering is when you take money obtained from any sort of illegal activity, let's take selling drugs for example. The problem is, is you can’t spend it without raising a lot of red flags for the government. They know that you’ve gotten that money tax free (as with all jobs taxes are deducted before you get your net income).” He says that money laundering is when you take illegitimate money and make it legitimate.
Let's take Lovett for example. Dr Douglas explains how you might give Lovett 50 million dollars. And then say, “Lovett, I want you to hire me and pay me 45 million dollars for doing nothing.” So then, you're getting a paycheck and “providing services” for the school and the government sees you’re getting money for doing a real job.
Ok, by the end of this article, you can see how confusing the economy really is. But can we just make it not confusing? Get rid of all money? Go back to trade? Then inflation, money laundering nothing of it would exist. To be fair, life seemed a lot easier when we were just trading fish for sticks.
“So the reason we use money is because it’s very useful. If I'm bartering and produce teaching then I could go to every single one of your parents and ask what they would give me in exchange for my teaching. So maybe one makes shoes and one makes clothing etc. But that's an immensely cumbersome process,” Dr. Douglas says. Basically, money takes the bartering piece out of the equation. Money lets us barter with everyone without the hassle, and if you were to get rid of money as a system our economy would become hugely inefficient.
And there it is folks. Hopefully, you learned something and maybe you can chime in the next time your parents are discussing the dreaded economics at the dinner table, and maybe be able to find the humor in the “world debt is fake” tiktoks.