If we as individuals would continue to spend more than we made, we would sooner or later have to pay up or go bankrupt. Our government is in the same position or will be unless we get serious about our liabilities and reduce expenditures enough to reduce the deficits or increase revenues enough to pay our bills and have some left over to pay the old bills. Evaluate this statement.

Question

What will be an ideal response?

Answer 1

To begin with, most individuals do spend more than they make for a substantial segment of their lives and incur sizable debt. What is important is the expectation about their ability to pay. For example, a $100,000 mortgage for a wealthy person may be insignificant debt, while a $100,000 debt for someone making $20,000 per year is alarming. The same is true for corporations. Corporations are able to borrow against their assets and earning potential, and are able to refinance debts periodically.
Governments are in an even stronger position than individuals or businesses because they have the power to tax and create money to pay their debts. As long as debt does not become large relative to the earning capacity of the government there should be no danger of bankruptcy since governments have the confidence of their citizens and can borrow or tax. There is also the point that governments, like private citizens and businesses, should borrow for productive purposes. If this is the major purpose for the borrowing, then it adds to the nation’s future income-earning potential and the ability to continue to pay interest on the debt. To summarize, governments are not in the same position as private individuals since they have virtually unlimited power to tax, and they do not have limited life spans.
On the other hand, it should be pointed out that irresponsible, excessive borrowing is not healthy for the economy or the people’s faith in its government.