Discussion Post and Responses: National Debt and Government Spending

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Discussion Post:

While a high national debt is far from ideal, it is also not near the crisis that many critics assert. In fact, in times of economic peril, as in the current situation facing the United States, spending money to stimulate the American economy and put people to work can be a beneficial practice, even if it means raising the national debt. As John T. Harvey states, regarding the current national debt, “these deficits are not a result of the government trying to buy something it cannot otherwise afford (as would be the case for you or me). Rather, they are setting out to generate sufficient demand for goods and services to employ all those willing to work.” This is a crucial point, in that it underscores the potentially constructive outcomes that can result from deficit spending. It is quite clear that accruing debt can actually be a sign of a functioning government that is working to best serve its people. There are also important reasons why debt is not nearly as large an issue for a country as it would be for a private citizen.

One of the most significant reasons why the United States can accrue as much debt as necessary without any great concern is that the government can simply print more money to cover any debts. As Harvey states, “The reason the US could never be forced to default is that every single bit of the debt is owed in the currency that we and only we can issue: dollars...There is simply no level of debt we could not repay with a keystroke,” and while this may result in economic consequences “we have seen neither hide nor hair of inflation or high interest rates during the current run up of the debt.” Quite clearly, due to the ability of the US government to create money, it is simply impossible to default our debt, and while this can result in inflation, these consequences are often overstated, and in general not nearly as serious as having a completely stagnant economy. While it is not ideal to run up a large national deficit, it is far from the insurmountable obstacle that many political pundits assert.

Response to Discussion Post 1:

While government spending is absolutely necessary for some areas to ensure the health of the economy and keep people employed, there are other areas where spending cuts could certainly be utilized. Specifically, this discussion post fails to mention the major reason for the enormous rise in the national debt since President Bush took office, the war in Iraq. As Joseph E. Stiglitz and Linda J. Bilmes state, “There is no question that the Iraq war added substantially to the federal debt. This was the first time in American history that the government cut taxes as it went to war. The result: a war completely funded by borrowing. U.S. debt soared from $6.4 trillion in March 2003 to $10 trillion in 2008 (before the financial crisis); at least a quarter of that increase is directly attributable to the war.” These statistics make it clear that one of the best and most effective ways to trim government spending and cut down the debt would be to cut back on unnecessary military and war spending. The enormous levels of national debt are directly attributable to the failure of the Iraq War, a perfect example of the sort of inessential government spending that should be dramatically pared down.

Response to Discussion Question 2:

This poster’s assertion that it is essential to reduce deficit spending to increase economic growth is simply untrue in many situations. As Paul Krugman states, “America’s budget deficit soared after the 2008 financial crisis and the recession that went with it, as revenue plunged and spending on unemployment benefits and other safety-net programs rose. And this rise in the deficit was a good thing...the stabilizing role of a large government was the main reason the Great Recession didn’t turn into a full replay of the Great Depression.” Quite clearly, there are some circumstances where deficit spending is essential to stimulate the economy and ensure that the private sector continues to invest. Leaving the market to its own devices can often have much more economically devastating effects than deficit spending. For this reason, it is important not to view the accumulation of debt by the government as an unreasonable or unmanageable proposition.

Works Cited

Harvey, John. "It Is Impossible For The US To Default." Forbes. Forbes Magazine, 10 Sept. 2012. Web. 28 Feb. 2014. http://www.forbes.com/sites/johntharvey/2012/09/10/impossible-to-default/.

Krugman, Paul. "Dwindling Deficit Disorder." The New York Times. The New York Times, 10 Mar. 2013. Web. 28 Feb. 2014. http://www.nytimes.com/2013/03/11/opinion/krugman-dwindling-deficit-disorder.html?_r=0.

Stiglitz, Joseph E., and Linda J. Bilmes. "The True Cost of the Iraq War: $3 Trillion and Beyond." Washington Post. The Washington Post, 5 Sept. 2010. Web. 28 Feb. 2014. http://www.washingtonpost.com/wp-dyn/content/article/2010/09/03/AR20100903