National Debt


A budget deficit occurs when government expenditure
outstrip tax receipts during any single year; the
national debt is the total sum of what the federal
government owes its creditors. When government collect
less taxation or spend more expenditure, it needs to
finance the unbalanced budget by issuing new debt
securities that increase the national debt. The national
debt reachesup to $1.5 trillion by 1990.

One of the most controversial issues among
the economist is that who fear the burden of the national
debt. There are two main schools of thougt; the current
generation or the future generation. The current generation
fears the burden of the national debt because it must give
up private goods to pay for the increasedpublic goods. If
government debt finances an expenditure on public goods, say
national defense, the resourcethat go into producing those
weapons must be given up by some persons during that current
period. On theother hand, the current generation who holds
Treasury Bonds or stocks will be paid back at some period in
future; therefore, the futre generation has the burden of the
national debt. Government needs to issue new bonds or collect
more taxation to finance its debt and the matured securities.
Those new bonds will bebought by future generations and those
higher taxes will be imposed on future generations.

In my opinion, the future generation has greater burden
of the national debt. When government debtfinances an expenditure,
it issues bonds or stocks that is purchased by bondholders. They
voluntarily tradeone asset (money), for another (bonds). What they
purchase is greater future consumption, not the government
expenditure. The people who pay for the government expenditure
are those who pay higher taxes or who buynew bonds or stocks to
retire the previously issued debt.