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LarryNaselli.com
Friday, February 6, 2004
How Bad Is A $500 Billion Budget Deficit?
The 500 Billion dollar U.S. Government Budget Deficit promises to be a major issue in the upcoming Presidential election campaign. Is this deficit truly a crisis? The United States' Gross Domestic Product is about 11 Trillion dollars, so the annual budget deficit is about 4?% of National Income. Those Billions and Trillions are hard for most of us to get our arms around, so let's look at it this way: a family with an income of $50,000 and a 4?% annual budget deficit would be falling short by $43.27 each week. Is that a problem? Certainly. Is it a crisis? An insoluable emergency? Hardly.

One of the ways the Government's budget deficit is different is that a family with this shortfall would look first for ways to reduce expenses by $45 per week. This is a consummately good idea, but it's not part of the Washington D.C. culture; so let's look at a family's second option, namely to increase their income by at least $45 per week. How? Work more hours, get a part-time job, change jobs, start a side-business, send a spouse into the workforce, get a raise, etc...

Giving the Federal Treasury an increase in income is precisely what President Bush has done by pursuing a pro-growth tax policy. As the economy grows, Government revenues increase, and if spending doesn't outpace the growth of revenues the deficits go away. What is the Democrat solution to deficits? Every Candidate still in the race for the Democrat nomination would "solve" the budget deficit by raising taxes, and thereby stifling the economic growth that would bring the Treasury more income.

Following the logic of every Democrat Presidential hopeful, the Democrat's financial advice to our struggling family would be to solve their $43.27 per week shortfall by working less hours, and reducing their income. At home, most folks would recognize that as the wrong approach. In Democrat presidential politics, such nonsense is approved conventional wisdom.

Posted by larry_naselli at 5:41 PM CST
Updated: Monday, February 9, 2004 5:04 PM CST
Post Comment | View Comments (2) | Permalink

Saturday, February 7, 2004 - 11:37 AM CST

Name: Deep Blade
Home Page: http://journal.deepblade.net

Excuse me, but the analogy should be based on the $2.2x10^12 federal BUDGET, not the GDP. So, multiply by 5 your family's equivalent problem.

I remember a year ago all the "conservatives" saying that the deficit at 2.5% of GDP was "historically low". Now this year it's 4.5%. Whoa!! HUGE increase in less than a year. And add in the current $150 billion, and sure to rise, off-the-books borrowing they're doing for the Iraq occupation--NOW what do we get? 5.5% of GDP? 6%? We're into a post WWII record (that's a shade above 5% in '85-6 and '92-3). Responsible bunch, these Republicans.

Dick Cheney is quoted as saying that the deficits don't matter. America can just pile on all it wants. Maybe, for now. America is a 1000-pound gorilla in the world economy that has so far looked to be a powerfully safe bet to foreign investors who want to park money. The deficit inspires growth, the US is unchallengable, so the program just keeps attracting these investors, even at the current miniscule rates.

What can end it is a free-falling dollar, a back-up in rates, an oil crisis, failing foreign economies (the Chinese have recently curtailed some US Treasury purchases because they have problems). President Bush hopes none of this will hit the fan, and it may not. But if I were Kerry (or whatever Democrat), I wouldn't be quite so eager to become captain of this ship in January 2005.


Monday, May 10, 2004 - 9:25 AM CDT

Name: Larry Naselli
Home Page: http://www.larrynaselli.com

Sorry I did not see your comment when you posted it, thanks for your remarks.

My point is not that budget deficits are not a problem, but that 1. the problem is proportional to the size of the economy, as in a family the seriousness of a shortfall of $x is proportional to the amount of your income, and 2. the best solution to the problem is growth.

I'm not a bit happy with the happy-go-lucky spending of Republicans since 1996, but at least they are still slightly embarrassed by their profligacy. I'm not aware that the Democrats have any such compunction. In any case, since spending control is passe, the remaining route out of deficits is economic growth, and the proven path to growth is tax cuts, not tax increases.

President Bush's determination to enact tax relief every year makes me cautiously optimistic that the U.S. will outgrow this recession-induced federal budget deficit, and indeed last week brought a report that deficit estimates have been revised downward thanks to the strong growth of the past year.

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