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Monday, November 11, 2019

What is deficit spending? What is the real problem with deficits?

Guest post by Roger Carlton:
Sorry to say that most of us are guilty of deficit spending. If you have a mortgage, car payments or credit card balances you are a deficit spender. If you borrow to go to college, you are a deficit spender. My liberal friends look at these "deficits" as investments. 


One of the key stories that got lost in the news regarding the impeachment process going on in the House of Representatives and the termination of the ISIS leader Baghdadi was the growth of the annual Federal deficit to nearly one trillion dollars.

It is important to understand that a trillion is a million-billion and a billion is a million-million. If that doesn't have you lost, assuming that you can afford a $50,000 F-150 pick-up, there are 20 of those in a million, 20 million of those in a billion and too many to contemplate in a trillion.

My conservative friends think negatively about deficits to the point that some are called deficit hawks. Sorry to say that most of us are guilty of deficit spending. If you have a mortgage, car payments or credit card balances, you are a deficit spender. If you borrow to go to college, you are a deficit spender.

My liberal friends look at these "deficits" as investments. Only time will tell if either view is correct. As George Will asks of conservatives, "What are you trying to conserve?"

The 2018 Federal deficit rose to $984 billion, which is a 26 percent increase over the previous year. 
The most amazing element of the deficit is the $380 billion that is spent on interest necessary to fund the borrowing cost of all previous deficits. In times of war, we need to deficit spend to protect ourselves. When the Great Depression and Great Recession happened, we needed to deficit spend to stimulate the economy by keeping critical companies and banks from failing. When the economy recovers those "loans" are usually repaid at a profit to the Treasury.

Politicians love to blame the deficits on entitlement programs like Social Security and Medicare/Medicaid. These programs actually run a surplus and if the economy is growing and we are at full employment revenues are increasing. The law governing the situation requires that the dollars needed to fill the general fund deficit pot be funded in part by borrowing from the surplus in the entitlement pots. So, we are borrowing from ourselves.

The debt will eventually be repaid with interest...we hope. This political blame shedding is really a way to avoid alienating the recipients of Social Security and Medicare/Medicaid by suggesting higher payroll deductions or heaven forbid lower benefits.

The real problem with deficits is Congress' inability to work out compromises on spending and revenue. Do we really need a multi-billion dollar wall? Should we increase the number of people eligible for Medicaid? Should we spend to harden our communities against the impacts of climate change? Should we subsidize charter schools? Did we really need a tax cut for the wealthy and corporations during very strong economic times just to name a few of the many demands on the Federal budget. Said another way, where is the line between needs and wants?

On the subject of deficits, perhaps Groucho Marx' comment on life says it all. "Whatever it is, I am against it."

Roger Carlton is a columnist for The Graham Star.



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