Understanding Economic Equilibrium

CHAPTER 14

Federal Spending: Budgets and Deficit Spending

People love to debate federal fiscal policy, setting the “correct” level of taxation and spending and the resulting federal deficit and debt. But in arguing they need to be careful about the often-confused distinction between deficit and debt. They are different and the distinction is important. The deficit is the change in outstanding debt; the sum of all past deficits is the amount of outstanding debt. The U.S. federal deficit for fiscal 2020 was $3.1 trillion; the outstanding debt held by the public at the end of August 2020 was $20.8 trillion (source: U.S. Treasury Department).

Unlike the debt, which is a fairly uncomplicated concept, understanding the deficit is not as simple as looking ...