Burden of the national debt

Burden of the national debt - a large national debt,...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Burden of the national debt It is generally accepted that the crowding out effect of government spending increases is stronger than the crowding in effect. But, given the presence of both effects, it is not unreasonable to expect that in some situations, like extreme slowdowns in the economy, crowding in might be stronger than crowding out. In these situations a budget deficit is a positive policy, as it spurs on economic activity in a time where activity might otherwise be extremely sluggish. It is important to remember that while crowding out is usually stronger than crowding in, it is not strong enough to completely cancel out all of the effects of increased government spending. In this way, national debt and budget deficits may be beneficial to the US economy, especially when the debt is owed domestically, because it represents economic activity that would otherwise be absent. While it is true that future generations will be burdened with greater interest payments on
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: a large national debt, because all of this economic activity--including the interest payments--is predominately between agents in the US, the harmful effects of the national debt and the budget deficits are minimized. There is a fringe party in the national debt debate who believes in debt neutrality. That is, they believe that the national debt has little or no effect on the economic wellbeing of the public because the public saves and spends in accordance with long-term economic goals. According to this position, if the national debt is high, citizens will save more to allow this debt to be attacked in the future. While this view is theoretically important, its practical importance is questionable as it relies on a fully informed populace. It is much more reasonable to accept the views that acknowledge some effect of the national debt on the economy....
View Full Document

This note was uploaded on 02/09/2012 for the course ECO ECO2013 taught by Professor Jominy during the Fall '08 term at Broward College.

Ask a homework question - tutors are online