National Debt Reaches Historic High: The Consequences of Keynesian Folly

By Robert Paulson

The national debt hit $38 trillion in October 2025, a staggering sum that represents decades of fiscal irresponsibility enabled by Keynesian economic theory. At 98% of GDP—nearly double the 50-year average—the debt now consumes resources at an alarming rate. Interest payments alone reached $970 billion in FY 2025, exceeding national defense spending. The bill for decades of political promises is finally coming due.

Bastiat and the Broken Window Fallacy

Frédéric Bastiat's parable of the broken window demolishes the Keynesian notion that government spending stimulates the economy. When government borrows to spend, it merely redirects resources from productive private uses to politically determined ends. The jobs "created" by government spending are visible; the jobs destroyed in the private sector are unseen.

Every dollar the government borrows is a dollar that cannot be invested in private enterprise. The innovation that doesn't happen, the businesses that don't expand, the productivity improvements never made—these are the unseen costs of deficit spending that dwarf any temporary "stimulus" effect.

The Keynesian Delusion

John Maynard Keynes convinced generations of policymakers that deficits don't matter, that government spending multiplies magically through the economy, and that we can borrow our way to prosperity. This seductive doctrine gave politicians the perfect excuse to avoid hard choices, promising voters endless benefits while pushing the costs onto future generations.

But as Ludwig von Mises demonstrated, economic laws cannot be repealed by government decree. Debt creates real obligations. Money borrowed must be repaid or defaulted upon. There is no magic multiplier that transforms fiscal irresponsibility into prosperity.

Swiss Economics: Sound Finance as Moral Obligation

The Swiss economic tradition, drawing on both Austrian insights and classical liberalism, views balanced budgets not merely as good policy but as moral obligation. To burden future generations with debt for current consumption violates the basic principle of not harming others.

Adam Smith warned against public debt, noting that it allows governments to make war and pursue grandiose schemes without the discipline imposed by immediate taxation. The accumulation of debt, he argued, inevitably leads to either default or confiscatory taxation—both of which harm productive citizens.

The Path Forward

The solution is not to "grow our way out" of debt through inflation or hope for magical revenue increases. The solution is painful but simple: reduce spending to match revenues, pay down debt over time, and return to the constitutional principle of limited government.

This requires rejecting Keynesian fantasies and embracing the time-tested wisdom of sound finance. As the Tea Party movement recognized, fiscal responsibility is not optional—it is essential for preserving freedom and prosperity for future generations.

The debt crisis was entirely predictable and entirely avoidable. Now we must choose between the hard work of fiscal discipline or the catastrophic consequences of continued irresponsibility. The laws of economics, unlike laws of politics, cannot be evaded.