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Managing the U.S. Government Deficit in the 1980s

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  • Benjamin M. Friedman

Abstract

In the absence of major policy changes, federal government budget deficits will probably constitute a serious impediment to any increase inthe U.S. economy's net investment rate, and may even depress the investment rate still further, during the latter 1980s. The U.S. Government's outstanding debt is now rising sharply in relation to gross national product,and, under either current legislation or the budget policies proposed by the Reagan Administration, it will continue to do so. This sustained upward movement of the government debt ratio will be unprecedented in U.S. peacetime experience. Because government debt and private-sector debt have historically moved inversely in relation to gross national production the United States, a rising government debt ratio over time implies a sustained contraction of private debt relative to the economy's size. This reduction in the private sector's relative debt position in turn implies a constriction of its ability to finance investment in net new capital formation.

Suggested Citation

  • Benjamin M. Friedman, 1983. "Managing the U.S. Government Deficit in the 1980s," NBER Working Papers 1209, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1209
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