a paper by the Inkwell Institute
Note: We at the Institute are a think tank, but unlike other think tanks we try to take a complex issue and boil down to simple understandable words. Others try to give the average person too much information and then tries to dazzle them with bullsh!t….we try to be a source of education and knowledge…….
There has been a bunch of lip service to the budget deficit….most of it coming from the Right….many Americans are upset with the rising deficit and are concerned with leaving massive debt to their children and their children’s children…..which is an honest concern, but we ask where that concern was when the deficit was swollen with two wars and a massive bureaucracy that was to become the Department Of Homeland Security? We digress……onward to the deficit……
In a recent report on the approaching deficit:
For 2009, the deficit is now projected at $1.58 trillion. There will be a $5 trillion increase in red ink over the next five years and a total of $9 trillion over 10 years. The long-term numbers are worse than previously forecast.
There will be debate after debate on what needs to be done to bring the deficit down and make it more manageable, at least that will be debate. But will anything be done and if it is, by whom?
First of all, what is a budget deficit?
Simply put, a budget deficit occurs when a government spends more than it acquires from tax revenues in any given period of time. See how simple that is? Why are we going to experience such a large deficit?
The US economy is in the grips of a recession and from the right comes the call for restraint in spending, because they say that the federal deficit is getting out of hand. But is it?
At a time like we are experiencing, should the government spending be reduced in order to control the deficit and balance the budget? The best answer is no….to do so in the grip of a recession would be counterproductive. It would reduce demand and employment and in turn this would extend the recession.
But the calls keep coming for a control of spending, not only from the conservatives but from within the Democratic party as well. But what would the attempt at a balanced budget do?
First, countercyclical fiscal policy would not recommend that the budget be balanced….why?…you ask…..a planned budget deficit is called for during times of an economical slowdown, like we are experiencing now; it helps create demand the fuel for the economy. A proper usage of a budget deficit can act as a stabilizing force for the ailing economy.
The Obama Admin is acting in a proper way to help the country and the economy come out of a recession….however they are trying to create demand the wrong way…they are trying to make credit strong again and that is what put the country in this perilous path. They are trying to create consumer demand by making credit more readily available…not the smartest way to create demand.
Bad timing on fiscal policy and a planned deficit can make matters worse; it can create a destabilizing influence in the economy. The emphasis on the markets could create that destabilization. If the consumer is not spending then there will be no recovery. Easy credit is not the answer we are all looking for to end the economic crisis.