U.S. Budget Deficit Good or Bad
Beginning with the "New Deal" in the 1930s, the Federal Government came to play a much larger role in American life. President Franklin D. Roosevelt wanted to use the full powers of his office to put an end the Great Depression. He and Congress greatly expanded Federal programs. Federal spending, which totaled less than $4 billion in 1931, went up to almost $7 billion in 1934 and to over $8 billion in 1936. Then the U.S. entry into World War II sent annual Federal spending to over $91 billion by 1944 (Evans 7-9). "As the federal government thus became a primary participant in the nation's economic activity, the era of big federal government spending began" (Davis 18). However, is running a deficit a good idea? There are several reasons that show how it is both good and bad.What if the debt is not increasing as fast as we think it is? The debt may increase in dollar amount but often times so does the amount of money or GDP to pay for the debt. This gives us the idea that the deficit could be run without cost. How then could a deficit increase productivity without any cost? The idea of having a balanced budget is challenged by the ideas of Keynesian Economics (Makin and Ornstein 14, 120-122). Keynesian economics is an economic mod
el that predicts that in times of low demand and high unemployment, a deficit will not cost anything (Gordon 132-136). Instead a deficit would allow more people to work, increasing productivity. A deficit does this because it is invested into the economy by government. For example if the government spends deficit money on new highways, trucking will benefit and more jobs will be produced. When an economic system is in recession all of its resources are not being used. For example if the government did not build highways we could not ship goods and there would be less demand for them. The supply remains low even though we have the ability to produce more because we cannot ship them. This non-productivity comes at a cost to the whole economic system. If deficit spending eliminates non-productivity, then its direct monetary cost will be changed if not exceeded by increased productivity. For example in the 1980's when the huge deficits were adding up, the actual additions to the public capital or increased productivity were often as big, or bigger than the deficit and this meant as long as the government spends the money it gains from a deficit on assets that increase its wealth and productivity, the debt actually benefits the economy. However, there is a third option which would allow the government to run a deficit and avoid the negative effects of inflation and crowding out. That option is borrowing from foreign sources. Because of the attractive high interest rates and stability, foreigners now buy huge amounts of U.S. national debt. This is not the perfect
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Approximate Word count = 1058
Approximate Pages = 4 (250 words per page double spaced)
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