U.Va. professors debate U.S. economy, debt

Politics Prof. Schwartz says debt only important in relation to GDP

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The Seriatim Journal and CommonCents co-sponsored a debate at the Miller Center Wednesday afternoon concerning the national debt and the budget deficit. The debate, titled “In the Red: Discussing the American Budget Deficit and Public Debt Burden,” featured Politics Prof. Herman Schwartz and Economics Prof. Edwin Burton. Second-year College student Russell Bogue, co-founder of the Seriatim Journal, moderated the event.

Much of the debate focused on the current status of the U.S. economy following the 2008 recession. Schwartz emphasized budget deficits are necessary during economic recessions.

“Determining when to balance the budget is a political question, but as an economic question, budget deficits are necessary in economic downturns,” he said.

Schwartz explained governmental policies need to be tailored to the naturally cyclical economy.

“There are boom periods and bust periods,” he said. “The whole purpose of government fiscal policy in terms of macroeconomic stability is to buffer those booms and busts. Governments need to collect tax revenue during boom times and spend like crazy during bust times to keep inflation and unemployment low.”

Burton, meanwhile, argued there is not sufficient evidence to suggest running deficits aids the economy during downturns.

“Government debt should be limited to long-term projects that benefit the long-term population,” Burton said.

He contended running deficits may actually further harm an economy.

“It’s not clear that running deficits is good,” he said. “Continuous deficits creates massive national debt such as that of today.”

Schwartz also noted the need to account for a nation’s gross domestic product to understand the stability of the economy.

“You don’t have to worry about your debt except if the debt is growing faster than GDP,” he said. “If your deficit as a percentage of GDP is smaller than the growth rate of GDP, your debt will be stable or falling.”

Schwartz said increased spending is one of the primary ways to revitalize an economy during a recession.

“You want the growth rate of GDP to be higher than the interest rate on debt,” Schwartz said. “If you put money into people’s hands, they will spend that money, and if they spend that it leads to economic growth. This is basic Keynesian economics.”

The discussion also touched on foreign investment in the U.S. economy. Burton explained at least half of the United States’ debt is held externally, specifically by China.

“The Chinese savings rate is 40 percent,” he said. “The [New York Stock Exchange] used to be American, but now about half is owned abroad because we have no savings rate. If you have no savings, you simply import it from places like China.”

The Seriatim Journal is an undergraduate journal of American politics founded at the University of Virginia in 2012. Second-year College student Ian Robertson, co-founder and co-executive editor of Seriatim, said the organization wanted to host a discussion concerning the problem of the budget deficit and America’s increasing public debt.

“In holding an open forum to address these problems, we hope to provide a variety of viewpoints on how our elected officials may go about tackling this pivotal issue,” Robertson said.

CommonCents UVA is an organization which hosts events throughout the semester related to financial literacy. CommonCents was founded by second-year Commerce student Faith Lyons after she realized college students lacked fundamental finance skills.

Lyons emphasized the specific need to educate students about current events in the financial world.

“Students told us that it can be intimidating to take classes covering such issues if you aren’t studying economics, so we thought we should address this issue in a more open forum,” Lyons said. “We started brainstorming this event last fall during the government shut down. We realized that a lot of college students didn’t understand what the shutdown meant, why the deficit matters, and the basic tenets of what we consider ‘macro’ financial literacy.”


Published April 10, 2014 in FP test, News





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