Question

1. What are the LONG TERM HARMS imposed upon our economy and our society by our government’s policy of borrowing over $500 billion each year (in 2020 dollars) every year—well, almost every year -- since 1982? That is, what are the MANY, SEVERE HARMS CAUSED BY THE DEFICIT? Please discuss at least ten harms.
2. Please rank each of these many, severe harms from “MOST” harmful, in your opinion, to “LEAST” harmful, in your opinion, and defend your ranking system.
3. Which groups in our economy are “hurt the most” by this yearly deficit? Which groups are “hurt the least”? For example, let’s say that I am an old college professor living in a house that is paid for, free and clear. Compare me to a 20-year-old college student just starting out in life. In theory, who is harmed more by this yearly deficit? Why?

Answer 1

1. Higher interst rates in the economy

2. Higher public debt may be utilized for unproductive purposes and result in increased burden on the community.

3. It may lead to extravagance and encourage arms race and war if channeled more towards military spending.

4. Higher taxes resulting in lower disposable income for the citizens.

5. It may also pose a challenge to the political freedom of the country.

6. Higher debt borrowing implies an out flow of wealth to the foreign countries.

7. Government may need to borrow afresh to repay the old loans which is detrimental to the development and prosperity of the nation.

8. The purchasing power of currency gets falls with higher borrowing.

9. High government borrowing can leaad to increase in bond yields.

10. Crowding out of private sector

The most harmful effects of higher public spending are inflationary pressure and increased interest rates.

This inflationary pressure will result in increased interest payments for student's loans and housing loans etc. So, the students and mortage payers will be ultimately affected by the high level of govt borrowings and icreased fiscal deficit.