US Budget Deficit Good Or Bad

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U.S. Budget Deficit Good Or Bad Essay, Research Paper 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 model 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. What if the government spends money on programs that do not increase its assets or productivity? For example small businesses. If the company invests money to hire a new salesman then he will probably increase sales and the company will regain what it spent hiring him. If the company spends money on paper clips when they have staplers they will lose the money spent on the paper clips. This unneeded spending is what makes a deficit dangerous because the governments net worth decreases which puts it into serious debt. Debt should not be a problem because we can just borrow more, right? This

would be correct if our ability to borrow was unlimited, but it is not. At first the government borrowed internally from private sectors. The government did this by selling bonds to the private sectors essentially relocating its own countries funds to spend on its country (Cavanaugh 37). This works fine in a recession, but when the country is at or near its full capability for production it cannot increase supply through investment of deficit dollars. This is because deficit dollars then translate into demand for goods that aren t being produced. Going back to the small business example, if a company is selling all the products it can produce, they can still hire another salesman. But because there are no more goods to be sold, the salesman would only increase the number of