debt, public
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debt, public
debt, public, indebtedness of a central government expressed in money terms, often referred to as national debt. The debt is computed differently by nearly every nation. Some authorities exclude all government obligations other than those incurred by public borrowing from individuals.
The U.S. national debt originated with the American Revolution and as of 2020 amounted to more than $20 trillion. President Ronald Reagan made the debt a campaign issue in his successful presidential run (1980), but the national debt nearly tripled during his presidency. By the late 1990s, however, a federal budget surplus allowed President Bill Clinton to start paying down the debt—the first time this action had been taken since 1972. In 1998, Clinton presented the first balanced federal budget (with no annual deficit) since 1969. By 2002, however, the large tax cuts enacted under President G. W. Bush, combined with the effects of an economic slowdown and increased expenditures on national security following the Sept. 11, 2001, attacks on the United States and the U.S. invasion of Iraq, led to new deficits and an increase in the national debt. In the financial crisis that began in 2007 and the subsequent recession, the U.S. government's efforts under Presidents Bush and Barack Obama to stabilize the financial system and revive the economy led to record budget deficits, and significant increases in the public debt, especially through 2012. Under the Trump administration, government spending to compensate for the economic effects of combating COVID-19 increased the deficit and public debt dramatically, and as the economy contracted led the public debt to approach 100% of GDP for the first time since the 1940s.
Reasons for Government Indebtedness
Governments may borrow to meet temporary needs, as when estimated revenue falls below or is exceeded by estimated expenditures. Short-term treasury notes, payable by increased taxes or by greater economizing, may be issued, but such a debt should not become permanent. Nonetheless, many national goverments incur such debt because of an unwillingness to limit spending or increase taxes for fear of the political consequences. Borrowing to finance public works, especially when widespread unemployment exists, is another source of public debt and is justified in part by their long-term social utility. The largest public debts are incurred to meet emergencies, such as war debts that arise when it is difficult to finance the extended activities of the government by new or increased taxes, or when the government must borrow abroad to finance the war effort..
Public debt is advantageous in that part of the national funds are secured at an interest rate lower than that provided to private industry and in that the financial operations of government are funded on a permanent basis. It may also have an expansionary effect on employment and production during times of high unemployment. The disadvantages are that unjustifiable projects may be undertaken because the full burden of payment is postponed; that the government's demands may become so large that the interest rate on government bonds will rise to the point where money is diverted from private enterprise; and that too great a debt may induce governments to depreciate currency or default on obligations.
Forms of Government Indebtedness
Payment of the Public Debt
Bibliography
See R. Heilbroner and P. Bernstein, The Debt and the Deficit (1989); D. Stabile, The Public Debt of the United States (1991); J. S. Gordon, Hamilton's Blessing: The Extraordinary Life and Times of Our National Debt (1997).