Deficits And Public Debt

Students: the Keynesian model concluded that government spending and taxation can be used to stimulate a recessionary economy and also use the same tools to slow demand during an inflationary period. This model suggests that the Federal government has, not only the ability to counter extreme business cycles, but also the responsibility to do so.

Ultimately, the application of macroeconomic principles can only be done in the political arena. This is the primary reason why one cannot separate economics from the political process. Inevitably, the very divergent opinions that emerge from each party are confusing at best—especially as it relates to deficits and public debt. As citizens and voters it is our responsibility to inform ourselves as best we can although it can be, and usually is, confusing.

We are at a very critical juncture in our country as we ponder how to best deal with the many economic problems that we face. The similarities to the late 1920s and the beginning of the great depression are many and ominous. Then, as now, there were fairly distinct choices—do nothing and hope that things get better, use government spending as a way to stimulate spending in our depressed economy, or conclude that balancing the budget will solve all problems. Then, as now, the argument between Democrat and Republican was heated and divisive. In recent years, the argument has focused on debt with conclusions that reducing federal debt would solve many of our economic problems and begin to reduce unemployment. With the passage of the new tax changes in 2017, and the increases in Federal spending, this logic has taken a new (but somewhat familiar turn). The conclusion that lower taxes will increase employment levels and ultimately result in more revenue for the Fed. brings us back to supply-side (trickle-down) economics and a different model. Presently, it appears that lower taxes and increased spending is resulting in a rapid increase in the deficit and public debt. The debate rages.

Without question, the Coronavirus has had a tremendous impact on the way that we look at the budget (and debt) question. We have seen a significant short term increase in public debt as we have attempted to respond to this crisis. As has been our tradition, we have turned to the Federal Government for solutions. There are simply no other entities in our system with enough power to deal with the magnitude of this issue.

This assignment is similar to the last. Please answer (thoroughly) the questions that I have posed, and use those opinions for your group discussion. I am asking for your opinion on these questions– but informed opinions. As was the case with each Discussion Board every opinion is to be respected and email communication should reflect that.

The same grading guidelines will apply as with the previous discussion boards. Remember, the assignment is to communicate thoroughly and in organized fashion, your point of view. Just putting words to paper does not mean that it meets these objectives, so think about what you are attempting to convey. The same thing applies to your responses to others. “I agree”, or “I disagree” is not a thoughtful and helpful comment. As usual, see the grading criteria posted in “discussion information” for more specific instructions about the assignment…the same timelines are to be used with the major paper posted at least 3 days prior to the closing date for the assignment.


1. How serious is the public debt situation in the USA?

2. If we paid off the debt would that solve most of our other economic problems, such as unemployment?

3. How should we approach balancing our budget…spending cuts only; tax increases only; a combination of the two?

4. Should wealthier citizens pay a larger percentage? How do you see our current tax policy relating to the deficit/debt situation?

5. Why has concern about the debt suddenly become such a major political issue?

6. Do you agree with the Keynesian Model…does government have the responsibility to try to maintain a stable economy?

7. If you were an economic consultant, what would you recommend to deal with the unemployment problem? Do we still have an unemployment problem?

8. The Tea Party suggests that eliminating most of government and balancing the budget would solve most/all of our economics problems. Do you agree or disagree. Why?

9. How does economic growth impact the size of our debt. How do the Democrats compare with the Republicans relative to growth and relative prosperity.

10. What are the similarities between personal and public debt—the differences?

11. How has coronavirus pandemic impacted our view of public debt?

12. How does the USA compare to other developed countries when you look at debt as a percentage of GDP. Does that percentage predict economic growth and development? See Economist Global Debt Clock, below.



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