The Public Interest

How to make sense of the deficit

Paul J. Pieper & Robert Eisner

Winter 1985

DEBT AND DEFICITS are like sin. To most of the public they are morally wrong, difficult to avoid, and not easy to keep track of. To some, the sheer magnitude of the federal debt, surpassing $1.6 trillion this year, suggests the danger of some kind of national bankruptcy. To others, the large and growing budget deficits, which have recently reached 6 percent of gross national product, are a harbinger of a new acceleration of inflation.  There has always been a certain amount of hysteria surrounding the federal debt and deficits. If we look into how they are calculated, though, we find that they are not always what they seem.  And that has some important implications for past mistakes in economic policy—and potential future disasters.

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