(Solution) ECON312N Week 7 Discussion: The Federal Deficit and National Debt

COURSE  

 ECON312N Principles of Economics

Optional Resources

Introduction
The federal debt is symptomatic of the nation’s persistent budget deficits as the national debt is the accumulation of budget deficits. Deficits grew steadily during the Great Recession when there was a significant shortfall in government revenue, which required that the government pursue an expansionary fiscal policy to stimulate the economy. The recession is now over, but the Trump administration, continues to pursue deficit spending. In a contribution to Forbes magazine, Chuck Jones (2018) points out that the U.S. Federal deficit was $587 billion in Obama’s last year in office, and it grew to $666 billion in the first year of Trump’s presidency. The Trump Administration’s Tax Reform plan and the two-year bipartisan budget, which passed in February 2018, are estimated, by many accounts, to cause the federal deficit to exceed 1 trillion dollars by 2020 (Jones, 2018). The implication of this growing deficit is a further increase in the national debt.

From 1965 to through 2019, there has been a persistent increase in the federal debt. This trend became more pronounced during (and in the aftermath of) the recession of 2008-2009. As shown on Figure 1, in September of 2017, for example, the national debt rose to 20.24 trillion U.S. dollars. This disturbing increase in the federal debt is likely to increase the per capita debt burden for each American citizen. According to Statistica (2018), if the debt owed in 2016 were distributed to every American citizen, the amount owed per capita would be 60,470 U.S. dollars. The current figure is available at the U.S. National Debt Clock website.

Graph of total public debt

Figure 1: Federal Debt: Total Public Debt

As the U.S. federal debt increased over the years, so did the federal debt as a percentage of GDP. From 1965 to 2018, there has been a general increase in the federal debt as a percentage of GDP. Remarkably, this increase was very pronounced during (and in the aftermath) of the recession of 2008-2009, after a brief decline from 1995 to 2002. As shown on Figure 2, in the fourth quarter of 2017, the Debt to GDP ratio was 104%. The ratio compares what the U.S. owes to what it produces, and it serves as an indication of the U.S.’s ability to pay its debt. This number can also be interpreted as the number of years it would take for the U.S. to pay back its debt if the nation’s GDP is used entirely to pay back its debt (Statistica, 2018).

Graph of total public debt as a percent of GDP

Figure 2: Federal Debt: Total Public Debt as a Percent of GDP

Initial Post Instructions
For the initial post, address the following:

  • Do you agree that the constitution should be amended to include a balanced budget requirement? Why or why not?
  • If you agree with a constitutional amendment, can you identify one reason why some people may be opposed to it? What proposals would you make to allay the concerns of those people?
  • If you disagree with a constitutional amendment, can you identify a line of argument – made by the proponents of the constitutional amendment – that you find compelling? What do you find persuasive about that line of argument?

Follow-Up Post Instructions

Respond to at least one peer. Further the dialogue by providing more information and clarification.

SOLUTION  

Do you agree that the constitution should be amended to include a balanced budget requirement? Why or why not?

The question of whether or not to have a constitutional amendment to include a balanced budget requirement was difficult to think about. Reading the textbook, it seems Greenlaw & Shapiro were mostly against the idea of a balanced budget. “A requirement that the budget be balanced in each calendar year, however, is a misguided overreaction to the fear that in some cases, budget deficits can become too large.” (Greenlaw & Shapiro, 2017) ……please click the icon below to purchase full solution at $5