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What are the burdens of the public debt?

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sj83 | (Level 1) Valedictorian

Posted September 1, 2013 at 3:26 PM via web

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What are the burdens of the public debt?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted September 1, 2013 at 3:49 PM (Answer #1)

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There are a few “burdens” that people believe come along with having a large national debt.  Let us examine them.

First, there is the idea that the burdens of the public debt are being passed down to later generations.  In other words, we are spending now (not always on things that are actually helpful) and forcing our descendants to pay for that spending.  For now, our debt is relatively low and so we ourselves are not burdened by it to a great degree.  However, this will not always be the case and our descendants will have to pay for our profligacy.

Second, there is the idea that the debt, and public uncertainty about whether the government can reform itself, make businesses less likely to invest.  The idea here is that people do not trust the government to get its debt under control.  Therefore, they fear that the country will default on its debts or that something drastic will be done that will really hurt the economy.  Because of this, banks are unwilling to lend and firms are reluctant to spend at a time when the future seems uncertain.

Finally, there is the “crowding out” effect.  When the government is in debt it must, of course, borrow money.  When the government borrows large sums of money, there is less money available for private companies to borrow.  In addition, interest rates are higher.  This makes it harder for the private sector to borrow because the government’s borrowing has “crowded out” the private sector.

These are the most typically cited burdens of having a large national debt.

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