U.S. Budget Deficit - Good or Bad?

?Spending financed not by current tax receipts, but by

borrowing or drawing upon past tax reserves.? , Is it a good idea? Why

does the U.S. run a deficit? Since 1980 the deficit has grown

enormously. Some say its a bad thing, and predict impending doom,

others say it is a safe and stable necessity to maintain a healthy

economy. When the U.S. government came into existence and for about a

150 years thereafter the government managed to keep a balanced budget.

The only times a budget deficit existed during these first 150 years

were in times of war or other catastrophic events. The Government, for

inezce, generated deficits during the War of 1812, the recession of

1837, the Civil War, the depression of the 1890s, and World War I.

However, as soon as the war ended the deficit would be eliminated and

the economy which was much larger than the amounted debt would quickly

absorb it. The last time the budget ran a surplus was in 1969 during

Nixon?s presidency. Budget deficits have grown larger and more

frequent in the last half-century. In the 1980s they soared to record

levels. The Government cut income tax rates, greatly increased defense

spending, and didn?t cut domestic spending enough to make up the

difference. Also, the deep recession of the early 1980s reduced

revenues, raising the deficit and forcing the Government to spend much

more on paying interest for the national debt at a time when interest

rates were high. As a result, the national debt grew in size after

1980. It grew from $709 billion to $3.6 trillion in 1990, only one

decade later.

Increase of National Debt Since 1980 Month Amount


12/31/1980 $930,210,000,000.00 *

12/31/1981 $1,028,729,000,000.00 *

12/31/1982 $1,197,073,000,000.00 *

12/31/1983 $1,410,702,000,000.00 *

12/31/1984 $1,662,966,000,000.00 *

12/31/1985 $1,945,941,616,459.88

12/31/1986 $2,214,834,532,586.43

12/31/1987 $2,431,715,264,976.86

12/30/1988 $2,684,391,916,571.41

12/29/1989 $2,952,994,244,624.71

12/31/1990 $3,364,820,230,276.86

12/31/1991 $3,801,698,272,862.02

12/31/1992 $4,177,009,244,468.77

12/31/1993 $4,535,687,054,406.14

12/30/1994 $4,800,149,946,143.75

10/31/1995 $4,985,262,110,021.06

11/30/1995 $4,989,329,926,644.31

12/29/1995 $4,988,664,979,014.54

01/31/1996 $4,987,436,358,165.20

02/29/1996 $5,017,040,703,255.02

03/29/1996 $5,117,786,366,014.56

04/30/1996 $5,102,048,827,234.22

05/31/1996 $5,128,508,504,892.80

06/28/1996 $5,161,075,688,140.93

07/31/1996 $5,188,888,625,925.87

08/30/1996 $5,208,303,439,417.93

09/30/1996 $5,224,810,939,135.73

10/01/1996 $5,234,730,786,626.50

10/02/1996 $5,235,509,457,452.56

10/03/1996 $5,222,192,137,251.62

10/04/1996 $5,222,049,625,819.53

* Rounded to Millions

Federal spending has grown over the years, especially starting in the

1930s in actual dollars and in proportion to the economy (Gross

Domestic Product, or GDP).

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 sought to use the full powers of his office to

end the Great Depression. He and Congress greatly expanded Federal

programs. Federal spending, which totaled less than $4 billion in

1931, went up to nearly $7 billion in 1934 and to over $8 billion in

1936. Then, U.S. entry into World War II sent annual Federal spending

soaring to over $91 billion by 1944. Thus began the ever increasing

debt of the United States. What if the debt is not increasing as fast

as we think it is? The dollar amount of the debt may increase but

often times so does the amount of money or GDP to pay for the debt.

This brings up the idea that the deficit could be run without cost.

How could a deficit increase productivity without any cost? The idea

of having a balanced budget is challenged by the ideas of Keynesian

Economics. Keynesian economics is an economic model that predicts in

times of low demand and high unemployment a deficit will not cost

anything. 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 offset if not

surpassed 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. This means 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