Is the federal budget deficit a problem? And if it is, what can be done about it?
Here is the 2014 version of the answer: This is not really a Ricardian equivalence question. While the deficit has fallen sharply in the past three years, it is still well above balance and will get worse because of demographic factors. While the economic relationship of deficits to economic performance is not strong in the short-run, persistent deficit threaten to erode economic growth over time (termites versus wolves analogy). And debt to GDP ratios are in the 90% range which has led eventually to much slower growth. So some solution is needed restore a surplus so the debt/GDP ratio had move back towards a "safe" 60%. How? A balanced approach of some tax increases, and restraints on entitlement spending growth are needed. Discretionary spending has been cut about as much as it can without being counterproductive. Some pro-growth policies to boost GDP growth even though they might make the deficit worse in the short-run
BUT could I get a more up-to-date answer to this question (2018 version)?
I would say controlled budget deficit is important in sparking economic growth by raising the level of household income.... View the full answer
- All the best in your studies
- May 14, 2018 at 4:41am