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Saturday, June 7, 2014

Book Review: Freedom from National Debt

The book "Freedom from National Debt" by Frank N. Newman, was published in 2013, and is an introduction to fiscal policy. Frank N. Newman worked as a bank executive and was the number two official at the US Treasury. In the book, he explains why worries about US government debt are largely unfounded. The material is familiar ground for those who follow Modern Monetary Theory (MMT) but the book is presented without too much theoretical baggage. 

Book Content 

The book is fairly short, at 107 pages (I read the Kindle version, so I find that length is harder to judge). The book consists of 10 chapters, plus an introduction and an appendix.

The chapters are:

  • Chapter 1: What is "Money"?
  • Chapter 2: How Money (bank deposits) and Treasuries are continually exchanged
  • Chapter 3: Why taxes are never needed to "pay off" "national debt"
  • Chapter 4: Why US Treasuries cannot face the same problems as securities issued by eurozone nations
  • Chapter 5: Why we do not need to worry about interest rates on Treasuries (The myth of the "bond vigilantes")
  • Chapter 6: Why interest on Treasuries is not a problem for the US 
  • Chapter 7: Why foreign ownership of Treasuries is not a problem
  • Chapter 8: The quote debt limit" debate in Congress
  • Chapter 9: Economic Saving and Treasuries
  • Chapter 10: Conclusions

The chapter titles offer a very good overview of what his conclusions are. The book uses some of the analysis from the author's earlier book "Six Myths That Hold Back America – And What America Can Learn from the Growth of China's Economy" (which I have not read). The book is somewhat informal, and does not dump of mass of statistics on the reader. Unfortunately, it does not have figures showing the trends in economic data. I find that presenting data in graphical form would help readers put the current situation in context.

The target audience of the book would be citizens who have an interest in these questions, and not specialists. By way of comparison, the writing on this blog is targeted at somewhat more specialized audience. The operational framework he discusses is for the United States, although he refers to the differences from the Euro area.

Relationship with MMT

There is an obvious overlap with the analysis of government debt in MMT. I have covered many of these topics myself here. The advantage of the book format is that it provides a continuous line of argument.

Although he refers to MMT authors (plus others who have a similar view of the role of government debt), of the book is mainly presented as matter-of-fact statements about the operational realities of the Treasury market and banking system, without introducing theoretical baggage. Since Mr. Newman was Deputy Secretary of the U.S. Treasury, he is in a position to argue from authority about government debt operations.

The advantage of not delving into theory is that the book should be easier to follow. The disadvantage is that it is more difficult to know where one could read further on these topics, and a reader may find it harder to understand discussions elsewhere. For example, in chapter 9 he discusses "heat and air-conditioning" in the context of not having fiscal policy causing the economy to hit capacity constraints, which presumably would lead to inflation. If he had mentioned Functional Finance, it would be easier for a reader to track down more discussion of the topic, and understand the debates about the issue.

Can Theory Be Ignored?

I will note that I am in the process of writing a book on fiscal policy, and I am interested in how another author decided to approach the topic. By not dragging in arcane debates about Ricardian equivalence, but instead explaining operational realities in a matter of fact tone, the book probably could reach a wider audience. I have a narrower target audience in mind, as I am targeting readers who wants to understand the existing debate.

A key area of debate is the one I am targeting for my book — whether there is a need to pay off the national debt (leading to "Ricardian Equivalence"). Frank Newman explains why this concept makes no sense in practical terms (correctly in my view). But sticking to common sense does not prepare you for the wonders of ill-posed systems of equations. There is complete agreement amongst mainstream economists that the intertemporal budget constraint holds (which is roughly equivalent to the government needing to "pay off" its stock of debt at some point), even though these economists disagree about policy and theory on other fronts. As a result, many economists would dismiss his arguments on the basis that they ignore the theoretical literature that has been developed over recent decades.

As a result, I viewed this book as being a good introduction for someone who wants a practical viewpoint about fiscal policy, and how government debt is linked to the banking system. But if you are interested in understanding online arguments about economics, you would then need to supplement this book with other sources that address the theoretical debates.

Finally, the book is available at Freedom from National Debt (affiliate link).

(c) Brian Romanchuk 2014


  1. Thanks for this review. I've been meaning to read this book. I read his previous book, which I strongly recommend to anyone, economists (especially those not steeped in public economics or macro).

    About the intertemporal budget constraint, I would recommend you check out Blinder and Solow (1973) when you tackle this topic for your book. You'll find that there is skepticism about these types of rules within the mainstream.

    1. Thanks for the reference, I will add it to my "to read" pile.


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