The National Debt
Good or Bad?
Spending financed not by current tax receipts, but by borrowing or drawing upon past tax reserves. Is it a good idea? Why does the U.S. run a deficit? Since 1980 the deficit has grown very big. Some say its a bad thing, and predict possible doom, others say it is a safe and stable necessity to maintain a healthy economy.
In the beginning the Government only generated deficits during the War of 1812, the recession of 1837, the Civil War, the depression of the 1890s, and World War I. But, as soon as the war ended the deficit would be eliminated and the economy which was much larger than the amounted debt would quickly absorb it. But the Federal spending has grown over the years, especially starting in the 1930s in actual dollars and in proportion to the economy. President Roosevelt sought to use the full powers of his office to end the Great Depression. He and Congress greatly expanded Federal programs. Federal spending, which totaled less than $4 billion in 1931, went up to nearly $7 billion in 1934 and to over $8 billion in 1936. Then, U.S. entry into World War II sent annual Federal spending
soaring to over $91 billion by 1944. Thus began the
ever increasing debt of the United States. The last time the budget ran a surplus was in 1969 during Nixon's presidency. Budget deficits have grown larger and more frequent in the last 50 years. In the 1980s it grew to record levels; when the Government cut income tax rates, greatly increased defense spending, and didn't cut domestic spending enough to make up the difference. As a result, the national debt grew in size after 1980; growing from $709 billion to $3.6 trillion in 1990, only 10 years later.
What if the debt is not increasing as fast as we think it is? The dollar amount of the debt may increase but often times so does the amount of money to pay for the debt. If deficit spending eliminates non-productivity then its direct monetary cost will be offset if not surpassed by increased productivity. For example in the 1980's when the huge deficits were adding up the actual additions to the public capital or increased productivity were often as big, or bigger than the deficit. What if the government spends money on programs that do not increase its assets or productivity? For instance lets take a Taco Bell. If
the owner invests money to make a new Taco Bell 10
miles away from the other Taco Bell then he will probably increase sales and the company will regain what it spent on building the store. If the company spends money on building a Taco Bell across the street from the other Taco Bell the money is wasted because there is not as great need for one there; therefore it will not bring a lot of new customers. This example of frivolous spending is what makes a deficit dangerous. Then the governments net worth decreases putting it into serious debt.
Debt should not be a problem because we can just borrow more, right? This would be correct if we could borrow an unlimited...