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Public Debt Vs. Private Debt July 5, 2014

Posted by larry in economics, Philosophy.
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PrivateVsPublicDebtBlog

While it can be generally agreed that the terms ‘public debt’ and ‘private debt’ on their own don’t imprint themselves easily on the mind, I think there is a way around this seeming impasse. And this is to link them to simple equivalences. This can be accomplished by emphasizing the direction of the debt relationship. And this can be done quite simply. Public debt = what the government owes its creditors, while private debt = what members of the public, including firms, owe their creditors.

To further spell this out, you can then elaborate who the creditors are in each case. In the case of the public/government debt, the primary creditor is the public as a collective, and this is shown on the so-called US national debt clock (which ought to be called the US national public resource clock). In the case of private/individual debt, there may be many creditors – in short, anyone you owe money to, which would include the government. I am including business firms within the penumbra of the public qua collective for the sake of simplicity. It is important to note that it is not particular individuals with whom the government has this general indebtedness relationship, but the public considered as a collective body. When we speak of public debt in general, it is the public as a whole to whom the government is indebted, not individual members of this public (though such relationships do exist, though not in this sense).

Logically speaking, debt is an asymmetric relationship, analogous, say, to temporal relations. Taking two logical individuals, A and B, to say that the indebtedness relation is asymmetric is to say that the nature of the indebtedness of A to B and that of B to A are distinct in character. Using the general terms, government, creditors, and individuals (persons or firms), we can put the relationships between the three this way.

With G = government, C = creditors, and I = private individual(s) or firms, public debt is one where G is indebted to C qua q, while private debt is one where I is indebted to C qua r, where q and r characterize, in general terms, the two different modes of indebtedness. The characters of the two distinct types of indebtedness are distinct in many ways while simultaneously possessing fundamental underlying similarities. These two modes of indebtedness are logically distinct from one another. The nature of government indebtedness is different in essential ways from the indebtedness of the individual citizen or resident. This difference is captured I think by formulating the indebtedness relationships in this way. The formulation is quite abstract, but that is by necessity.

While the nature of creditorhood in both types of indebtedness may be so similar as to be effectively identical in the two cases, the character of the indebtedness relations themselves will not necessarily be similarly similar (ugh).

When spelled out in this way, it is easy to see that the debt relationship goes both ways but in distinct respects. To reiterate, while there are differences, there is a fundamental similarity and this similarity can interfere with appreciating the differences between the two types of indebtedness relations. Formulating the two distinct indebtedness relations in this way can, I trust, render the differences more salient without allowing the underlying similarity to inhibit understanding the fundamental characteristics of this relationship. Or so I would argue.

Therefore, when the terms, ‘public debt’ and ‘private debt’, are used, they should be considered to be parsed in the way I have suggested above and displayed starkly in the picture at the top. In this way, hopefully whatever confusion there might be between the two terms will vanish or become insignificant. And we can, therefore, go on using the two terms without confusing ourselves.

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