Managing government debt.

To construct a stochastic version of [R. J. Barro, J. Polit. Econ. 87, 940-971 (1979)] normative model of tax rates and debt/GDP dynamics, we add risks and markets for trading them along lines suggested by [K. J. Arrow, Rev. Econ. Stud. 31, 91-96 (1964)] and [R. J. Shiller, Creating Institutions for Managing Society's Largest Economic Risks (OUP, Oxford, 1994)]. These modifications preserve Barro's prescriptions that a government should keep its debt-gross domestic product (GDP) ratio and tax rate constant over time and also prescribe that the government insure its primary surplus risk by selling or buying the same number of shares of a Shiller macro security each period.

Three world wars: Fiscal-monetary consequences.

Directed by a consolidated government budget constraint, we compare US monetary­fiscal responses to World Wars I and II and the War on COVID-19.

Earnings growth and the wealth distribution.

As measured by Gini coefficients, fractile inequalities, and tail power laws, wealth is distributed less equally across people than are labor earnings. We study how luck, attitudes that shape saving decisions, and growth rates of labor earnings balance each other in ways that simultaneously shape joint distributions across people of labor earnings, age, and wealth together with an equilibrium rate of return on savings that plays a pivotal role in balancing contending forces. Strong motives for people to save and for firms to demand capital raise an equilibrium interest rate enough to make wealth grow faster than labor earnings. That makes cross-sectional wealth more unevenly distributed and have a fatter tail than labor earnings, as in US data.

Brief history of US debt limits before 1939.

Between 1776 and 1920, the US Congress designed more than 200 distinct securities and stated the maximum amount of each that the Treasury could sell. Between 1917 and 1939, Congress gradually delegated all decisions about designing US debt instruments to the Treasury. In 1939, Congress began imposing a limit on the par value of total federal debt outstanding. By summing Congressional borrowing authorizations outstanding each year for each bond, we construct a time series of implied federal debt limits before 1939.