Fiscal Policy & Our National Debt

What is “fiscal policy”?

What is our current national debt?

What can be done to solve this

problem?
•  Avoid occasions of expense. . . and avoid
likewise the accumula7on of debt…not
throwing upon posterity the burden which we
ourselves ought to bear.
•  George Washington
How does the US government
influence economic ac6vity?
•  The US government is a full
player in the US economy just
like any other economic
par6cipant

•  Fiscal Policy = Use of

government revenue (taxes) &
spending
–  Distribu6on of income
–  Savings / Investment
–  Government programs /
services
–  Borrowing / Debt
Overview of the Federal Budget Challenge 4
 Where the Money Goes:
Traditional Federal Spending Policies
What types of debts does the US owe?

•  The annual imbalances between

revenues and spending in our
government is known as a deficit

•  Debt: The accumulation of deficits

over time
•  Public debt: U.S. government money held by individual
Americans and foreigners
•  Debt held by other financial entities: debt to finance a
loan to a private entity in which government acquires a
financial asset
•  Inter-governmental debt: Held by government trust
funds (e.g., Social Security) and other accounts
What is the history of our na6onal debt?

•  The US has developed a

na6onal debt since
before we were a
country
–  Pre-1776

•  Reasons:
–  War costs
–  Internal improvements
–  Social programs
Early US Debt – Paying Debt Down

Overview of the Federal Budget Challenge 10

1835 – Only Year in US With NO
Na6onal Debt!!

11
Fiscal Challenges & The US Civil War
(1860’s)

Overview of the Federal Budget Challenge 12

Intro of the Income Tax & World War I
(1900-1918)

Overview of the Federal Budget Challenge 13

Fiscal Spending of the New Deal & World War II
(1930’s-1940’s)

Overview of the Federal Budget Challenge 14

The Great Society & The Vietnam War
(1950-1970’s)

Overview of the Federal Budget Challenge 15

President Reagan’s “Arm’s Race” & The End of the
Cold War (1980’s)

Overview of the Federal Budget Challenge 16

U.S. Budget Deficits/ Surpluses, 1970-2022

Years, 1961-2008
The Balanced Budget / Clinton
Years (1990’s)

Overview of the Federal Budget Challenge 18

September 11th, War on Terror, &
the Bush Tax Cuts (2000’s)

Overview of the Federal Budget Challenge 19

 The 2008-2009 Economic Crisis and
Soaring Federal Deficits

Deficits up from $455 billion in 2008 to $1.8 trillion in

2009 due to Federal spending associated with the
“Great Recession”
The Economic Challenges of the
21st Century (2010’s)

Overview of the Federal Budget Challenge 21