Budget Deficits and the National Debt:
The candidacy of H. Ross Perot succeeded in placing the issues of budget deficits and the accumulating national debt on the political agenda. The debate over the nature of the deficit, its magnitude, and its consequences for the national economy have been raging in the economic community for quite some time but the issue now appears to have entered the more general public dialogue. The analysis which follows attempts to define the different economic perspectives on the national debt and deficits. It evaluates the differing perceptions of the consequences of the debt and deficits for the U.S. economy and concludes with a personal response and critique of these issues.
Deficit and National Debt: Is it a Problem?
In the most general sense, there are probably two major reasons to worry about the Federal deficit and the increasing national debt. The first involves the question of the ultimate solvency of the government and the second involves the negative side consequences for the U.S. economy. The issue of solvency will be analyzed later and the immediate focus will be on the consequences for the economy.
The orthodox position on the deficit is the argument that it is a major problem and must be cured with tax increases (the position of the Democratic party) or cutting spending (the Republican party). Both of these groups maintain that the budget deficit reduces national savings, contributes to the trade deficit, and should therefore be eliminated.[1]
More unorthodox positions are also articulated in the economic community on the left and the right. The mainstream of both the economics profession and the political community condemns the deficit and the increasing national debt. However, Robert Eisner for example, coming from a more liberal persuasion, has argued that the deficit is a statistical illusion. He rests his case on the effects of inflation in raising the measured...