National Debt

The United States government faces mounting debts that crowd out private investing and cost the American tax payer $234 billion this year. The Congressional Budget Office expects the debt to grow to $1.7 trillion by the end of the year and increase as boomers begin to receive Social Security and Medicare1. While spending wisely through investments in capital raise the nation’s gross domestic product over and reduce unemployment, the practice of running deficits in all phases of the business cycles is problematic because it indicates a structural deficit caused by an inability or unwillingness of the American government to live within its means2,3. Economists to measure the national debt because it is an indicator of a nation’s ability to repay its debt use debt-to-GDP ratio, because it compares the amount owed to the amount that the nation produces per year. While the current debt-to GDP ratio is below the post World War II, it will soon grow drastically as Social Security and Medicare spending increases faster that the GDP4. The primary objective of American economic policy should be to grow the economy, increasing the government’s capacity to repay the debt. Unfortunately, the increasing deficits that entitlement spending requires creates a debt that is simply too large to grow completely out of. The GDP has grown sluggishly over the past decade from $9.76 trillion to $14.2 trillion, while the debt has skyrocketed from $5 trillion to $12 trillion5. The congressional budget office projects that the national debt to gross domestic product ratio will rise to 82% by 20196.The United States must curb wasteful entitlement spending, while maintaining programs likely to lead to economic growth. Responsible deficit spending can lead to a surplus as it did when Reagan’s military spending played an important role in ending the cold war, creating the peace dividend, as the defense budget was reduced due to the absence of the Soviet threat. While economists disagree on