How Government Budget Deficits Make Us Poorer

by | Nov 11, 2016

How Government Budget Deficits Make Us Poorer

by | Nov 11, 2016

According to some commentators the US federal budget deficit still remains a major economic problem notwithstanding that it draws less attention than in the past. The Federal Government budget had a surplus of $33.4 billion in September against a surplus of $90.9 billion in September last year. The 12-month moving average of the Federal Government budget stood at a deficit of $49 billion in September against a deficit of $44.2 billion in August and a deficit of $37 billion in September last year.

Most experts are of the view that the harm from budget deficits comes from “crowding out,” the idea that government debt absorbs investors’ funds that would otherwise be used for private investment, driving up interest rates.  However given that at present interest rates remain at historically low levels, they argue that there is no need to be concerned with budget deficit as such. On the contrary it is advised by many experts that it is to the benefit of economic growth to increase deficits.

Given the still subdued economic growth, it is also argued that an increase in the budget deficit in response to a strong increase in government outlays will boost aggregate demand and this in turn will strengthen the overall economic growth. Again these proponents regard the present low interest rates as an opportunity for fiscal policy to become more active.

In contrast, there are commentators that are in favor of a deficit reduction who are of the view that the government books must be always balanced, i.e., the government must live within its means in similarity to every individual in an economy.

Read the rest at Mises.org

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Frank Shostak's consulting firm, Applied Austrian School Economics, provides in-depth assessments of financial markets and global economies.

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