Economic Policy and the National Debt
Ironically, when governments overspend they typically find ways to refund or restructure debt — when individuals or corporations within those countries do the same, the consequences are quite different. Money means more than one thing — usually an object that is traded for payment of goods or services, of exchange. However, when we talk about the government, there is a huge different in the way the money supply works within the economy. In modern capitalism, commodity money (gold and silver) was replaced by representative wealth in that currency is no longer tied to the stores of precious metals. Instead, monetary policy under the that the goal of fiscal policy is to “promote effectively the goals of maximum employment, stable prices, and interest rates” (U.S. Mint, 2011).
As individuals, we typically live within a budget based on our expenses and income. It consists of food, clothing, transportation, housing, etc. Excess goes into savings or investments, in theory. Large governments do not operate this way, or with this level of responsibility for the detail of budgets within a small amount of time. Instead, they often use a concept called deficit spending. This is the amount that the government exceeds in their spending over a period of time and assume that the debt will not be called due, as it would for an individual. One theory about deficit spending says it is desirable over time because it compensates for the cycles of demand (Hamilton, 2010). The other view, though, is focused on fiscal conservatism, and says governments should be required to balance a budget, and surpluses used to pay down debt. Realistically, though, the national debt has been increasing since the end of World War II, with a huge spike in the 1980s and early 1990s, until now, as of October 2012, is in excess of $16 trillion, or about $142,000 per taxpayer (U.S. Debt Clock, 2012). Just because this debt is “on the books,” though, does not mean it is not real, and it is thus passed down from generation to generation. Ironically, too, foreign investors and/or foreign governments own about half of the U.S. debt, with the largest holders being the central banks of China, Japan, Brazil, Taiwan, the UK, Switzerland and Russia. The single largest holder of U.S. debt is actually China, with almost 8% of all U.S. debt and almost 30% of U.S. Treasury securities (Schoen, 2007).
There are at least two controversial ways to look at the continuation of massive debt in the United States, in particular when dealing with social programs. The United States is a nation built on the views of basic human rights and respects for the individual. Welfare is a broad public policy term that holds that it is the responsibility of society to provide a minimal level of social support and well-being to all citizens. This is provided, in most developed countries, by the government, charities, informal social groups, some religious donations, and even . In the United States, the Welfare system began during the Great Depression with the view that helping those in need would support a better society, fuel less poverty, allow more educational benefits, and reduce crime (Pierson, 2006). In addition, Social Security was designed as a social insurance program in the 1930s to limit extreme poverty for older Americans, but never designed to fund retirements of 15-30 years (Achenbaum, 2007). However, after decades we now have a Social Security system that will run out of money before 2020 and a welfare system that is now multi-generational and rather than individual work ethic and actualization (Sheffield, 2011).
The situation is quite dire, and shows a great deal of fiscal irresponsibility, both in allowing foreign governments to “own” half of the U.S. debt, and the spending on programs that do not necessarily promote new taxpayers and good citizens, but reward people for remaining jobless. If this were personal debt, banks would foreclose on loans, and most certainly, we could not just say, at the end of a fiscal year, that we would “retire” 30% of our personal debt for a decade or so. It is the 4-5 decades of entitlement that have changed generations on their expectations of government, now government needs to change that perception and create a new reality (Eberstadt, 2012) What needs to happen, just as it would in the individual household, is that the country take responsibility for spending and develop programs that will incent people to work, incent people to save, and create a climate of greater fiscal responsibility (News in Fiscal Commission, 2012).
News. (2012). Fiscal Commission.gov. Retrieved from: http://www.fiscalcommission.gov/news
Achenbaum, A. (2007). Older Americans, Vital Communities. Baltimore, MD: Johns Hopkins University Press.
Pierson, C. (2006). Beyond the Welfare State. Malden, MA: Polity Press.
Sheffield, R. (July 9, 2011). President Obama Admits Welfare Encourages Dependency. The Foundry. Retrieved from: http://blog.heritage.org/2011/07/09/president-obama-admits-welfare-encourages-dependency/
Schoen, J. (March 2007). Just Who Owns the U.S. National Debt? MSN.COM . Retrieved
U.S. Mint. (2011). Information on Money. USMINT.GOV. Retrieved from: http://www.usmint.gov/mint_programs/american_eagles/index.cfm?flash=no&action=American_Eagle_Gold
U.S. National Debt Clock. (October 2012). Outstanding Public Debt. Retrieved from: