Archives for March 2023

Paulson, Mariko. “Explainer: Capital Crowd out Effects of Government Debt.” Penn Wharton Budget Model, Penn Wharton Budget Model, 10 Aug. 2021, https://budgetmodel.wharton.upenn.edu/issues/2021/6/28/explainer-capital-crowd-out-effects-of-government-debt. 

Direct Quote: “In the case of taxes, the taxed entity may reduce investment in real capital because of its smaller after-tax budget. If government expenditures do not cause an offsetting increase in capital investment elsewhere in the economy, then the government’s policy reduces the total capital stock. Note that higher taxation may actually increase investment, as can happen when corporate investment is partially expensed and tax rates rise, thereby creating a tax incentive to shift cash flow from shareholder distributions and toward investment. In the case of debt issuance, the government collects real resources via voluntary transactions with economic agents who are willing to trade real resources today for the promise of real resources in the future. Debt buyers, including U.S. households saving for retirement, view this debt as savings, which reduces their savings in private investment. This substitution is called the ‘capital crowding-out effect’ from government debt issuance. National saving, therefore, is reduced more when the new government debt is used to finance more immediate consumption (e.g., social transfers) compared to longer-term public investment (e.g., roads and pre-K education)” .

Summary/My Interpretation: As the US continues to invest in programs, it requires an increasing amount of capital. This causes the government to sell its debt to the public in exchange for the promise that they will be paid back in the future. This is problematic because as the US continues to sell its debt, it causes the amount of capital in circulation to fall. As capital drops, there is less investment/activity in the private sector, causing economic output to drop.

 How I will use this in my project: As a whole, this article does a good job at explaining how the national debt can hurt economic growth. Specifically, as the private sector gets crowded out, it causes there to be less total economic growth. I plan to use this idea to link changes in the federal debt to the effects it has on middle class families, such as reducing the number of opportunities available to them.

Gould, Hilarey, and Kimberly Amadeo. “How Did the U.S. National Debt Get So Big?” The Balance, The Balance, 4 Oct. 2022, https://www.thebalancemoney.com/the-u-s-debt-and-how-it-got-so-big-3305778. 

Direct Quote: “In the short run, the economy and voters benefit from deficit spending because it drives economic growth and stability. The federal government pays for defense equipment, health care, building construction, and contracts with private businesses. New employees are then hired and they spend their salaries on necessities and wants, like gas, groceries, new clothes, and more. This consumer spending boosts the economy. As part of the components of GDP, federal government spending contributes around 7%. Over the long term, debt holders could demand larger interest payments, because the debt-to-GDP ratio increases, and this high ratio of debt to gross domestic product (GDP) tells investors that the country might have problems repaying them. That’s a newer—and worrying—occurrence for the U.S. Back in 1988, the national debt was only half of what the U.S. produced that year. Lower demand for Treasurys also puts downward pressure on the dollar because its value is tied to the value of Treasury securities. As the dollar value declines, foreign holders get paid back in a currency that is worth less than when they invested, which further decreases demand. Many of these foreign holders would become more likely to invest in their own countries. At that point, the U.S. would have to pay higher interest payments”.

Summary/My Interpretation: One of the most controversial topics in the US is whether or not the nation should continue to increase its federal spending. Whenever the nation invests more into programs, it spurs economic growth in the short run as jobs are often created and there is an increase in the amount of money in circulation. However, while the economy is boosted in the short run, the deficit ultimately hinders growth overtime. Specifically, as the US continues to amass debt, investors start to lose confidence that the nation will pay them back. This causes them not only to demand their money back but also causes the US dollar to depreciate in value.

 How I will use this in my project: This article does a good job at explaining the inherent trade off that exists when looking at federal spending. More specifically, it highlights how increasing the deficit spurs economic growth in the short run but will eventually hurt the nation’s GDP as it drives down investor confidence. I plan to use this article as a way to explore the debate that exists between those who support increasing the deficit and those that believe we should be working to solve the debt crisis. Additionally, I also plan to use this article as a way to show how increasing the debt has helped the US, such as how it played an essential role in implementing FDR’s New Deal.

Gould, Hilarey, and Kimberly Amadeo. “How Did the U.S. National Debt Get So Big?” The Balance, The Balance, 4 Oct. 2022, https://www.thebalancemoney.com/the-u-s-debt-and-how-it-got-so-big-3305778. 

Direct Quote: “The U.S. debt is the sum of all outstanding debt owed by the federal government. On Feb. 1, 2022, it surpassed $30 trillion for the first time, and soon after it set another record on Oct. 4, 2022 by passing the $31 trillion mark.¹ The U.S. Treasury Department tracks the current total public debt outstanding and this figure changes daily. The debt clock in New York also tracks it. The majority of the national debt is debt held by the public.¹ The government owes it to buyers of U.S. Treasury notes including individuals, companies, and foreign governments. The remaining portion is intragovernmental debt. The Treasury owes this debt to its various departments that hold Government Account Series securities. The biggest owner is the Social Security Trust Fund. These Government Account Series securities have been running surpluses for years, and the federal government uses these surpluses to pay for other departments. They will come due as people born from 1946 to 1964 retire over the next two decades”.

Summary/My interpretation: The US federal debt is a measurement of the total amount of money owed by the treasury department to the different actors who have been involved with the nation. The vast majority of this figure comes from debt that the government has amassed with the public sector, including citizens, businesses, and other nations. Additionally, the treasury also has accumulated debt with the other sectors of the government as it has sold them Government Account Series (a form of federal loan that can’t be sold in a secondary market).  

How I will use this in my project:  One of the biggest barriers to being able to predict the federal debts affects on the middle class is first understanding what exactly the debt is. Oftentimes, the average person will think that the US’ debt is only to other nations when in reality a large portion of the deficit comes from domestic sources. I hope to use this article as a way to better explain the debt to my audience and provide valuable background knowledge before starting to explore the deficits effects more closely.

• By looking at the tube, our group knows that the end goal for this activity is to assemble a puzzle
• Methodology
  • The first step that we will take is to divide the pieces among the group members.
  • From there we will sort through our respective piles and remove all edge and corner pieces
  • We will then assemble the border and slowly work towards the middle of the puzzle

How this relates to my project: As a whole, this activity taught me how to work in small steps in order to achieve an end goal. More specifically, throughout this activity our team knew what the final product was supposed to look like but needed to divide the task into smaller more manageable steps.

Advice for presentations:

• Face the audience while speaking
• Have most of your presentation memorized
• Use engaging body language
• Have visuals
• Use multiple tones
• Talk loudly and clearly

Takeaways from video

• Make your ideas worth sharing
• Try to illustrate to your audience how you see an idea
• Challenge your audience’s world view