In short, to revive jobs and the economy, the federal government needs to do the opposite of what families should do in hard times: spend more money.
It’s true that doing this would increase the deficit, and it’s true that budget deficits ultimately need to be faced. But the deficit problem is far less urgent than most elected officials are letting on. In this weak economy with high unÂemployment, the deficit is a long-term problem, not a short-term one. The immediate issue is unemployment””a problem that calls for spending, not austerity. Along with improving people’s lives, more jobs mean a more robust economy””which will ultimately do more to reduce the deficit than anything else will.
I’m not necessarily a fan of either small or large governments. But this is just naive. The signs are already present that too much more debt, or even insufficient indication of reducing debt, and investors will not loan the U.S. any more money – much as with Greece and Italy.
Should governments spend more than their revenue in the lean years? Absolutely. Should they be going into further debt when no-one can work out how to get out of the current debt (after all, they are gridlocked on simply slowing the rate of the debt growing)? Absolutely not.
What should happen is that governments should be spending considerably less money than they tax during the good and so-so times, and building up a reserve for the lean times. Then they can spend from that. But that would take significant financial restraint, and as soon as one party managed it, the opposing party would oppose it to differentiate themselves.
The Howard government in Oz, much as I have beefs with them on a number of fronts, did this and paid off Australia’s debt, and so Australia was only lightly hit by the current economic downturn. But then it was replaced by a Labor government which quickly ran the debt back to its previous levels.
Government spending in hard times is a good thing. But it requires everyone (or a sufficient majority) to be okay with not spending all the income (and more) during the rest of the time. Someone has to loan that money to the government, and they won’t do it if it’s a bad decision.
It’s worked so well up to now.
What the Christian Century doesn’t know about basic economics would fill…a textbook in basic economics.
Actually – spending is part of the logic of tax cuts – that people will spend they money that they normally send to the government. The problem is that it is rarely enough. The wealthy, who benefit disproportionately, are currently hoarding because they are worried about the future. Thus the vicious cycle.
When we increase demand, tax revenues also increase because the economy expands. The reason why Clinton balance the budget wasn’t merely because of the income from those same people who paid more – but because the taxes incentivized more investment rather than simply putting it in the for profit column.
There are certain kinds of spending that benefit everyone – businesses and non businesses alike. During the years of the highest taxes we built an infrastructure that was the envy of the world, and benefitted all kinds of enterprise. We’ve rejected that for now because of our ideology that says that government is bad.