Introduction
Among the different expenditure heads of the Federal Government, we are mainly concerned with Public Investment expenditures and Entitlement expenditures here. Public Investments expenditure is those as in public projects (building of roads, bridges, schools, hospitals etc.) which are direct investments. Expenditure is also incurred in indirect investments i.e. investments in sectors like Education, Healthcare, Food and Nutrition, R&D, etc. which may not show a direct value return as they are intangible, but are vital to nation building. On the other side, we have the entitlement expenses which is payable to beneficiaries who is entitled to them as per the constitution and statutes. Entitlement expenditures are carried out in sectors as Social Security, HealthCare Insurance, Pensions, Unemployment Insurance, etc. (Taylor, 2012). The difference between government revenue and government spending is called budget deficit if the end result is negative and budget surplus if positive.
Now, due to socio-demographic trends, entitlement expenditure today is constantly increasing. Therefore, as other expenditure heads such as Defense, Foreign Aid, etc. is more or less same or increasing, it is public investment expenditure which is getting reduced every year. For instance from the adjacent graph, it is seen that in 1962, Public Investment was two and a half times that of entitlements but in 2012, entitlement expenditure is now about four times that of investments. This change in government expenditure showing opposite trends in Public Investment and Entitlements is what has been mentioned as the changing patterns in government expenditure. To give us an example of the magnitude of changes being discussed, Taylor says that entitlements were “$2 trillion in 2011. Of that total, about three-quarters were payments from Social Security ($725 billion), Medicare ($480 billion) and Medicaid ($275 billion). Other big categories include payments to federal retirees ($124 billion), unemployment insurance ($117 billion) and food and nutrition assistance ($96 billion).” In the near future, with the aging of the baby boomers and the ACA, entitlements will only increase.
National Debt and its characteristics
What is National Debt? The national debt of the country at a particular year actually means the sum total of the budget balances from the first instance till that particular year. What can be the outcome of increasing national debt in the macroeconomic sense of view? Does it mean that our posterity is being shackled in debt even before birth? No, that is a ridiculous idea. Increasing national debt means more and more nation building works being postponed as more and more money is diverted to entitlement expenditure. This debt is not that sort of a debt which is passed on from a generation to the next.
People are paranoid about foreigners being in charge of our national debt, which is nothing but economic fiction. Yes, a certain part of national debt is the trade deficit i.e. when our imports from a country become more valuable than our exports. This gives the foreign creditors a say in our finances. However, trade deficits are matters of trade and commerce and can be overcome in a hundred and one ways, the discussion of which is not pertinent here. The annual deficit is a figure which shows the effectiveness of the budget. It does not mean that the deficit has been rectified by bonded labor of Americans. As Dean Baker says in truth-out.org “We can have a large amount of government debt and still have a country where income and wealth are relatively equally distributed.” Finally, Taylor gives us three examples, those of Greece, Ireland and Argentina when investors lost faith in repaying capacity of the governments and abandoned their bonds. Taylor certainly has a point but can the USA be compared to these three countries? The US’s credibility is definitely higher than that of the combined credibility of these three countries. If we want to speak about assets and liabilities, we have to see the entire balance sheet and not a portion alone.
Therefore, the concept of national debt becoming a burden on posterity is hyperbole. We do not mean that national debt is good which it is not. National Debt gives slow growth. National Debt makes the economy sluggish. But surely national debt’s role on posterity is a gross exaggeration and a myth. National debt can be tackled by a number of ways. Progressive taxation is one of them. Reducing expenses on defense is another and so on.
Conclusion
Hence, we have tackled the issues of fiscal deficit and national debt and clarified how they differ. We have discussed the digression of the two expenses of investment and entitlement. We do not agree that a high national debt will place posterity under pressure and have spelled out why this is not so. In the long run, all that is needed is a sound economic policy and a sincere government which implements the policy with disregard to populism. Surely, that is not too much to expect.
REFERENCES
Dale.B. ( 2012) ‘The Debt is Not a Measure of Generational Burdens’, Truth-out. Accessed from <URL http://truth-out.org/news/item/9711-the-debt-is-not-a-measure-of-generational-burdens>
IMF (2010), ‘Will it hurt? Macro-Economic effects of Fiscal Consolidation’ The International Monetary Fund. Accessed from <https://www.imf.org/external/pubs/ft/weo/2010/02/pdf/c3.pdf >
Taylor. T. (August 2012) Entitlements, Public Investment, and the Changing Nature of the U.S. Government. Weblog ‘Conversable Economist. Accessed from <URL“http://conversableeconomist.blogspot.com/2012/08/entitlements-public-investment-and.html>
