In 2011, New York Times columnist Paul Krugman wrote:

People think of debt’s role in the economy as if it were the same as what debt means for an individual: there’s a lot of money you have to pay to someone else. But that’s all wrong; the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.

That’s not to say that high debt can’t cause problems — it certainly can. But these are problems of distribution and incentives, not the burden of debt as is commonly understood. And as Dean says, talking about leaving a burden to our children is especially nonsensical; what we are leaving behind is promises that some of our children will pay money to other children, which is a very different kettle of fish.

As of the end of the U.S. government’s fiscal year on September 30, 2015, here’s Political Calculations’ estimate of the size of the U.S. national debt and the percentage share of it that is owed to its major groups of creditors.

The U.S. national debt had been “frozen” at $18.152 trillion after hitting the nation’s statutory debt ceiling on February 24, 2015, which was later suspended on November 3, 2015 which allowed it to immediately increase by $339 billion. The estimate of $18.444 trillion above for September 30, 2015 assumes that the U.S. national debt would have otherwise grown at a steady rate during the period in which it was frozen.

In looking at the chart, the one thing that we see right off is that 33%, or one third, of the U.S. national debt is actually owed to foreign entities. And if not for the U.S. Federal Reserve’s quantitative easing programs in recent years, in which it grew to become the largest single creditor to the U.S. government, it’s quite possible that the share owned by foreign interests would nearly be 50%.

But that’s not the biggest problem of having such a large national debt. Arnold Kling identifies the real problem in having a nation’s debt grow to be too large – even if all its lenders and spenders are found within the nation’s population, starting with a simple example:

There are two types of people in our economy: Lenders and Spenders. Sammy Spender and Lois Lender each grow two bushels of corn per year. However, Sammy wants to eat three bushels this year. There are three ways that this can happen.

Private loan: In a purely private transaction, Sammy borrows one bushel of corn from Lois this year and pays her back one bushel of corn next year.

One-time redistribution: The government redistributes corn by taxing one bushel of corn away from Lois and giving it to Sammy.

Government borrowing: The government borrows one bushel of corn from Lois this year and gives it to Sammy. It then pays Lois back out of taxes next year.

In each case, Sammy can consume three bushels of corn this year — the two he produces, plus the additional bushel from Lois. Conversely, Lois consumes one bushel of corn this year — the two she produces, minus the bushel that Sammy gets.

Next year (year two) is where the three cases differ. With the private loan, when Sammy pays Lois back next year, she is the one who will have three bushels of corn and he will be the one with only one bushel.

In the one-time redistribution case, assuming no further redistribution, then next year Sammy and Lois will revert to consuming what they produce — two bushels of corn each.

Every year, the debt creates more and more political division and antagonism.

With government borrowing, the outcome is decided in year two. Suppose that the government pays back the debt at that time. It owes Lois one bushel of corn. If it obtains that bushel of corn by taxing Sammy, then the result is the same as the private loan. If it obtains the bushel of corn by taxing Lois, then the result is the same as the one-time redistribution. If the government gets half of its tax revenues from each, then Lois will have 2.5 bushels of corn to eat (two bushels she produces plus one bushel repayment, minus 0.5 bushels of tax). Sammy will have 1.5 bushels to eat (two bushels he produces minus 0.5 bushels of tax).

In the first year, when the government borrows the money, nobody is unhappy. Sammy gets to eat an extra bushel of corn, and Lois willingly defers consuming one bushel of corn with the expectation of getting it back next year.

However, this sets the political system up for conflict and strife in year two, when the burden of paying the debt has to be apportioned. As we have seen, it could be divided any number of ways. However, consider this: Lois is expecting three bushels of corn, based on what she produces and her expectation of having her loan repaid. Meanwhile, Sammy is expecting two bushels of corn, based on what he produces. There are only four bushels of corn available, and there will be a political battle over who gets disappointed the most.

It gets worse.

In fact, in year two, the government will not want to resolve the issue of distributing the cost of the debt. Paying off the debt requires incurring political cost. The easiest thing to do is instead to roll over the debt. Moreover, Sammy is used to eating three bushels of corn, and the government does not want to have him face austerity. So it goes to Larry and Lena Lender for a loan of two bushels of corn. The government pays back Lois with one bushel and gives the other bushel to Sammy. It goes into year three with a debt of two bushels of corn.

As you can see, the political incentive for the government is to go deeper and deeper in debt. This in turn raises the stakes in the political conflict over who will bear the burden of tax increases and spending reductions. Every year, the debt creates more and more political division and antagonism….

The burden of the debt is that we create an ever-deeper conflict of interest between Lenders and Spenders. Yes, if you think of Lenders and Spenders collectively, you can say that “we owe the debt to ourselves.” But that is a dangerously vacuous way of looking at it. Large government debt is a recipe for a bitter political stew.

And that’s how the outsized growth of the U.S. national debt since 2008 became the defining domestic political conflict of our time.