ECON 4020-001 - Intermed Macroecon - Essay Example

Paul Davidson’s article “Making Dollars and sense of the US government debt” critically analyzes the history of national debt in America and also suggests as to how a misinterpretation of the Keynesian theory is actually restricting government to stop incurring the deficits. Davidson presents a historical account of the national debt and how new US government inherited the war time debts. He further provides evidence of how subsequent governments actually either reduced or increased the national till a point when it became the permanent feature of managing macroeconomic indicators within the economy.

Davidson suggests that US increased the national debt during wars and recessionary periods because during those times only spender is government. The spending by the government therefore stimulates the necessary domestic demand which creates more jobs and increases the consumption. He provides evidence of how large deficits by the government during war and recessionary times actually were followed by periods of economic prosperity as well as job creation. Era after World War II was an era which was economically more prosperous than the times before war and one of the most important reasons for this was the government spending during war times by the US government and resulting large deficits.

Davidson therefore suggests that actual task of fiscal policy is to act as a balancing wheel to generate sufficient aggregate demand which can stimulate entrepreneurs to create new jobs and deter from imposing or raising taxes to reduce the fiscal deficit and remove the role of government from the economy.Robert J Barrow’s article “Robin Hood Cant Lead Us Out of the Debt Hole: Obamas obsession with higher tax rates on the rich is not helpful” however focuses upon the argument of raising marginal taxes for rich in America to finance the fiscal deficit of the country.

Barrow suggests that the current government in US may be missing the point that by increasing the government expenditure, multiplier effect can have a positive impact on the economy. He presents the recent historical analysis of the financial crisis and how the government actually allowed Lehman Brothers to fail to actually initiate a systematic failure of important institutions. Barrow therefore argues that rather than taxing the rich, the overall composition of the federal government needs to be changed.

Government shall increase the maximum age limit for the entitlement of the social security as well as further rationalize the federal government outlays. Author also suggests abolishing some of the State level taxes which raise little revenue and are relatively inefficient in nature. Besides suggesting abolishing and gradual phasing out of the taxes, Barrow also suggests in the article that some of the subsidies shall also be reduced to free up government resources to increase its revenue. Barrow therefore suggests increasing the national debt ceiling in relatively clean manner in order to avoid the default by the US government while at the same time suggesting some of the measures to bring in more fiscal discipline and control over the expenditure of the government.