Worth: Mankiw Economics 5e CHAPTER FIFTEEN Government Debt Blessed are the young, for they shall inherit the national debt Herbert hoover When a government spends more than it collects in taxes, it borrows from the private sector to finance the budget deficit. The accumulation of past borrowin is the government debt. Debate about the appropriate amount of government debt in the United States is as old as the country itself. Alexander Hamilton be- lieved thata national debt, if it is not excessive, will be to us a national blessing, whereas James Madison argued that "a public debt is a public curse "Indeed, the location of the nations capital was chosen as part of a deal in which the federal government assumed the Revolutionary War debts of the states: because the Northern states had larger outstanding debts, the capital was located in the Although attention to the government debt has waxed and waned over the years, it was especially intense during the last two decades of the twentieth cen- tury. Beginning in the early 1980s, the U.S. federal government began running large budget deficits--in part because of increased spending and in part because of reduced taxes. As a result, the government debt expressed as a percentage of GDP roughly doubled from 26 percent in 1980 to 50 percent in 1995. By the late 1990s. the b deficit had come under control and had even turned into a budget surplus. Policymakers then turned to the question of how rapidly the debt should be paid off. The large increase in government debt from 1980 to 1995 is without prece- dent in U.S. history. Government debt most often rises in periods of war or de- pression, but the United States experienced neither during this time. Not surprisingly, the episode sparked a renewed interest among economists and poli cymakers in the economic effects of government debt. Some view the large bud- get deficits of the 1980s and 1990s as the worst mistake of economic policy since the Great Depression, whereas others think that the deficits matter very little. This chapter considers various facets of this debate. We begin by looking at the numbers. Section 15-1 examines the size of the S. government debt, comparing it to the debt of other countries and to the debt that the United States has had during its own past. It also takes a brief look at what the future may hold. Section 15-2 discusses why measuring changes in 405 User LUxpI: Job EFFo1431: 6264_ch15: Pg 405: 26545#/eps at 1004g Wed,Feb20,20023:28User LUKBI:Job EFF01431:6264_ch15:Pg 405:26545#/eps at 100% *26545* Wed, Feb 20, 2002 3:28 PM When a government spends more than it collects in taxes, it borrows from the private sector to finance the budget deficit.The accumulation of past borrowing is the government debt. Debate about the appropriate amount of government debt in the United States is as old as the country itself.Alexander Hamilton be￾lieved that “a national debt, if it is not excessive, will be to us a national blessing,” whereas James Madison argued that “a public debt is a public curse.” Indeed, the location of the nation’s capital was chosen as part of a deal in which the federal government assumed the Revolutionary War debts of the states: because the Northern states had larger outstanding debts, the capital was located in the South. Although attention to the government debt has waxed and waned over the years, it was especially intense during the last two decades of the twentieth cen￾tury. Beginning in the early 1980s, the U.S. federal government began running large budget deficits—in part because of increased spending and in part because of reduced taxes. As a result, the government debt expressed as a percentage of GDP roughly doubled from 26 percent in 1980 to 50 percent in 1995. By the late 1990s, the budget deficit had come under control and had even turned into a budget surplus. Policymakers then turned to the question of how rapidly the debt should be paid off. The large increase in government debt from 1980 to 1995 is without prece￾dent in U.S. history. Government debt most often rises in periods of war or de￾pression, but the United States experienced neither during this time. Not surprisingly, the episode sparked a renewed interest among economists and poli￾cymakers in the economic effects of government debt. Some view the large bud￾get deficits of the 1980s and 1990s as the worst mistake of economic policy since the Great Depression, whereas others think that the deficits matter very little. This chapter considers various facets of this debate. We begin by looking at the numbers. Section 15-1 examines the size of the U.S. government debt, comparing it to the debt of other countries and to the debt that the United States has had during its own past. It also takes a brief look at what the future may hold. Section 15-2 discusses why measuring changes in | 405 Government Debt 15 CHAPTER Blessed are the young, for they shall inherit the national debt. — Herbert Hoover FIFTEEN