Deficit Hysteria: A Common Sense Look at America's Rush to Balance the Budget

Deficit Hysteria: A Common Sense Look at America's Rush to Balance the Budget

Deficit Hysteria: A Common Sense Look at America's Rush to Balance the Budget

Deficit Hysteria: A Common Sense Look at America's Rush to Balance the Budget

Synopsis

The political consensus in the United States today is that the nation must avoid deficit spending. But as virtuous and unassailable as that goal sounds, it has fallacies and dangers. In a lucid, nontechnical writing style, Benavie shows that deficits can be either good or bad and explains how to tell the difference. Deficits, or government borrowing, can be beneficial to the nation's economic health, he shows, in three main ways. When the economy slumps, a deficit is automatically created and helps to reduce the severity of the recession. When the economy is seriously depressed, boosting the deficit may be the only cure, and deficits supporting such investments as basic research, cleaning up toxic waste, and rebuilding inner cities are crucial to the economic health of future generations. Preventing such borrowing would be comparable to preventing one's family from borrowing money to buy a house or to put a child through college.

Excerpt

June, 1998: For now, we're safe. We have eluded that horrifying monster called "the deficit." But one false move and we could fall back into its grip again, or so the politicians and pundits would have us believe. Black holes, time bombs, arterial bleeding; these are only a few of the nightmarish images that have been used to describe the deficit. Herblock has drawn it as a Frankenstein monster with "MADE IN USA" tattooed on his forehead.

During the 1980s and early 1990s, as the deficit soared, many were convinced that economic disaster lay just around the corner. And still today, with surpluses on the horizon, our country is enslaved by a powerful myth: that the deficit is a sinister force, rotting the material and moral foundations of our society, a blight that must be wiped out as soon as possible no matter what the cost. Politicians are falling all over themselves to assure us they won't let it happen again.

The truth is that the size of the deficit (or surplus) alone tells us nothing about the health of our economy. Only when we consider how the government is using its revenues--whether they are derived from taxes or borrowing--can we evaluate our economic policy. Fear of the deficit, on the other hand, can cause real harm, by tying our government's hands and blinding us to the true indicators of our country's economic well-being: employment, inflation, productivity, and the gap between the rich and poor. Only if we overcome our deficit phobia will we be able to formulate policy conducive to our economic well-being.

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