Sunday, October 4, 2009

National Debt -- AP Macroeconomic Lesson Plan

Summary: Students opine about who bears the burden of the public debt after looking at the data.

National Debt Clocks are a good way to arouse student interest in the public debt.  Click here, here, and here.  Often the debt clocks break down the debt per person. 

John B. Taylor, has an excellent graph here on "Alarming Debt Charts." HT to Gregory Mankiw. 

After viewing Mr. Taylor's graph, there is an excellent discussion about the historical debt here, The Federal Debt as a Percentage of GDP, by Christopher Chantrill who's work is shown in this blog.

Discuss who bears the burden of the debt.  Below are my thoughts.  Please add your own and disagree.

Current generation owes the debt:  As the government devotes more and more of its spending on public works, there's an opportunity costs in consumer goods.  So this argument says that current consumption is given up so the future generation can have more goods later.  I also believe that we owe the debt to ourselves.  That is, the older generation pays both the principal and interest back to the older generation--those who bought the debt.

Future generation owes the debt.  Some argue that higher taxes in the future shifts the debt to the younger generation.  Since the bondholders who bought the debt, say 30 years ago, are repaid, all they did was swap assets.  The future generation has to bear the burden of higher taxes.

When the government builds roads, schools, and funds military intervention, many U. S. citizens reap all of the benefits but none of the cost.  These are the so-called "free riders" who share the consumption of a good who are non-excludable.  It's hard to measure the impact on a higher national debt on free riders. 

Also, income is unevenly distributed and those in the highest quintile pay a hefty share of the debt relative to those in the second quintile. 

I look forward to your discussion.

About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, Iowa. He is an author, and blogs at Mikeroeconomics.  He has a passion for Haiku that is often posted on Twitter.


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