It's only money ...

Whether the national debt or household debt, the major concern about its existence should be the "redistribution of income" resulting from that debt.  With household debt, it's easy to recognize the transfer of wealth that occurs --- who benefits, who loses.  If a household doesn't mind paying 20% more (e.g., principle + interest) for the things they buy, then debt really isn't an issue.

With the national debt, the winners and losers aren't quite so transparent, but the same type of "redistribution of income" occurs between winners/losers.  Who might these two groups be?  Who benefits? Who loses out?

                                                                     Source:  Google Images

$$$ = $$$

Even if we could balance the federal budget going forward (i.e., revenue = spending), our national debt would continue to automatically rise due to the interest on that debt. Currently, interest on the U.S. national debt is the third largest component of government spending, following national defense spending.  Why so high?  Well, consider the amount of interest associated with a $17.5 trillion debt, which is rising automatically as well.

Conclusion:
To balance the budget, revenue must equal spending + additional interest on the expanding debt.

Macro Foundations

The following links (Macroeconomics by Paul Krugman and Krugman and the New York Times) coincide well with our recent and upcoming classroom topics regarding the Classical/Keynesian debate, and also represents a nice conclusion to our course.

War on Welfare

It should come as no surprise that the latest macroeconomic policy issue seems to be the "War on Welfare".  Though the following quote was written during the 1960's "War on Poverty", in my opinion, it applies equally well in today's circumstances.

"The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a moral justification for selfishness."
                                                                -- John Kenneth Gaibraith

It's fascinating that the increase in transfer payments (e.g., on welfare, food stamps, unemployment compensation as well as student grants, farm subsidies, corporate bailouts, etc.) is a direct result of a poorly-functioning economy, though somehow the perception of the "deserving" vs. "undeserving" poor has always existed, and serves to differentiate the legitimacy of the transfer payment categories above.

Why?

Self-fulfilling Prophecy?

Interesting article on math ability as a self-fulfilling prophecy since the same thing seems to happen to beginning economics students.

Probability & Equilibrium

The "special case" referred to in my previous post relates to a macroeconomic concept known as "full-employment equilibrium".  Something to consider:

If there are an infinite number of possible equilibrium situations, but only one full-employment equilibrium outcome, what is the probability of the economy successfully achieving that full-employment equilibrium, as well as maintaining it?

                                                                      Source:  Google Images

Chapter One of Keynes' TGT

The paragraph quote below is the entire chapter one of Keynes' most famous book, The General Theory. Though written approximately 75 years ago, this introductory message could just as easily be directed at government policy-makers today.  Note, especially, the last sentence and reference to "...the characteristics of the special case..." (Keynes 3).  It is imperative for any economics scholar to understand that Keynes, by this concluding statement, is describing not only the whole premise of his theory, but also the purpose of the title, TGT.

That "special case" is literally a situation so rare, that it shouldn't be a basis for policy-making whether in the 1930's, or today.

                                                                     Source:  Google Images

                                   Chapter One of The General Theory

"I have called this book, The General Theory of Employment, Interest and Money, placing the emphasis on the prefix general.  The object of such a title is to contrast the character of my arguments and conclusions with those of the classical theory of the subject, upon which I was brought up and which dominates the economic thought, both practical and theoretical, of the governing and academic classes of this generation, as it has for a hundred years past.  I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium.  Moreover, the characteristics of the special case assumed by the classical theory happen not to be those of the economic society which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience."
                                                                      -- John Maynard Keynes