The national debt is the accumulation of budget deficits. The size of the national debt is scary. What are the long-term consequences of the national debt?
The national debt clock can be found here. The national debt increases by $1.4 billion a day. This site has calculated the portion of the debt to each U. S. citizen to be roughly be $29,000.
When the government runs a deficit, national saving decreases (Y-C-G) which means lower investment. Greg Mankiw explains the relationship between savings, investment, and the trade deficit by using the national income accounting equation: S - I = NX. So lower saving implies higher consumption, C, and a larger trade deficit. In the long-run, a country that runs a persistent trade deficit will accumulate smaller capital stock and not grow fast enough to meet the economy's needs. Eventually the debt will have to be paid off. Usually, the assumption of the debt is placed on future generations.
Some economists like Robert Solow, argue that future higher taxes to finance the debt will be offset by increased savings now.
Many will attack the government's wasteful spending such as the Iraq war. Still, the debate on the national debt is enough to make one's hair stand up.
Here's an interesting post from Cafe Hayek to use with your comments.
ReplyDeletehttp://cafehayek.typepad.com/hayek/2007/10/does-it-matter-.html
I think it makes a point about deficit, debt, and saving.
We could be better savers, no doubt. But as long as someone provides capital, our economy can (notice I didn't say will) continue to grow.