1. In your view, should the US aim to reduce government debt at the expense of...

1. In your view, should the US aim to reduce government debt at the expense of social programs like Social Security, Medicare and Medicaid. What is the argument for reducing deficit spending and what is the argument for maintaining (or expanding) social programs? What are the limits on government debt, both in general and in the US specifically? Explain.

Expert Solution

1.

US should not aim to reduce government debt at the expense of social programs, because government has already taken deductibles in the name of social security tax and it also has commitment towards poor people and underprivileged section of the society. If social programs are compromised, then it will create chaos in the society & US economy at large.

The argument for reducing deficit spending is that it will save the coming generation from additional tax burden and payment of interest made to the bond holders can be reduced. If not done, then, economy will be under the debt trap and it will collapse one day when there will be no funds to finance the social programs.

The deficit spending was intended to be done in a way that it will bring positive cash flows in the future, so that deficit financing of the today, will be balanced. So, deficit financing was not meant to spent funds on social programs. Hence, government should stop use of deficit financing for the purpose of social programs. Rather, social program spending should be based upon the contributions made by the people for their old age securities and it should be market linked.

Each country has its own GDP level and on the basis of that, the maximum debt limit is set, for USA specifically, it is the $22 Trillion debt limit, reset on March 2 of 2019. This debt limit is very near to the size of the US GDP. It means that each country can have the maximum debt ceiling of the size of their GDP.

Rahul Sunny answered 1 year ago

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