Rodrigo S. answered • 08/14/19
Harvard Alum Industry Leader - Econ & Tech
Excellent question.
Yes, and it would be easy to do so, but it would be detrimental to the economy. It actually happened in 1835, for the first and only time, when president Andrew Jackson paid off the national debt entirely.[1]
The National debt is very different from a household or company debt because a country is not a for profit entity. A country could be either in debt or profiting, but unlikely remain at zero for a long time. Let's say that a country is profiting. This means that the country has excess money that could be saving people's lives (building hospitals, investing in research to cure diseases, etc) but instead has chosen to put it into a vault. Keeping reserves in excess would limit a country's operational capacity for its immediate needs.
A country could pay its debt in several ways: by printing money, cutting spending, raising taxes, increasing exports and GDP. But at the time the country starts spending the excess money, it would be in debt again. So the next question is, can the country stay around zero levels of indebtedness? The answer is the similar, yes - but not the best thing to do. An argument can be made that staying close to zero levels, a country could be a net lender (lending out more than borrowing) to other nations and even earn interest. However, this would be an extreme austerity measure, which has several downsides.
Austerity measures have been identified as one of the causes of limited sustainable growth, the IMF concluded.[2] Limiting national spending reduces the ability of the government to stimulate the economy and create opportunities for progress. It increases inequality and concentration of wealth.
So what debt level of is acceptable? There is no right answer. Check the debt-to-GDP ratio from OECD https://data.oecd.org/gga/general-government-debt.htm which the median is 75%.
More importantly than reducing the debt is where the money is spent and how efficient this investment is on improving people's lives.
[1] Smith, Robert (April 15, 2011). "When the U.S. paid off the entire national debt (and why it didn't last)". Planet Money. NPR. Retrieved January 15, 2014. https://www.npr.org/sections/money/2011/04/15/135423586/when-the-u-s-paid-off-the-entire-national-debt-and-why-it-didnt-last
