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Budget and the economy

Is reducing the U.S. deficit important for economic growth?

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, Rare Staff

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The financial world measures the United States’ economic vitality by looking at the national deficit, and the government records the deficit, too. But what is it? And does a looming, ever-increasing deficit personally affect the United States’ future?

Generally, a deficit is the amount by which a sum of money falls short of the required or expected amount. The U.S. has a current federal deficit of approximately $680 billion — the lowest it has been in five years. It represents how much the U.S. has borrowed this year in order to meet expenses.

Larry Summers, former treasury secretary to President Barack Obama, doesn’t see the U.S.’s current deficit as an impediment to economic growth, but Congressman Paul Ryan (R-Wis.) argues the opposite: that an increasing deficit will hurt generations to come.

So, who’s right? In an Oct. 29 interview with NPR, Mr. Summers spoke with reporters Steve Inskeep and Renee Montagne about the U.S. and its budget deficits. Mr. Summers said the “most important issue facing the country is not looming budget deficits. It is maintaining substantial economic growth going forward.” When Mr. Inskeep pressed further about how a large deficit and debt might cause concern among the public, Mr. Summers had this to say: “Certainly at a minimum I would say that the policies we’ve had for the last few years of rushing to bring down the budget deficit have had the ironic effect of slowing economic growth and probably have not contributed very much at all to reducing debt burdens.”

But Congressman Ryan disagrees with Mr. Summers’ contention to ignore the deficit.

The former vice presidential candidate’s views on the deficit differ starkly from Mr. Summers’. “We have a moral obligation to address [the deficit] for future generations.” During the 2012 election cycle, Congressman Ryan unveiled his “Path to Prosperity” plan, which proposed reducing spending by $5.3 trillion over 10 years, resulting in a budget deficit that would be $3.3 trillion less than what has been accumulated under President Obama. And in March this year, Congressman Ryan unveiled a second 10-year plan to reduce the deficit. “You can’t get the deficit down – the debt down – without economic growth,” said Congressman Ryan in an interview with the Wall Street Journal.

President Obama in response spoke in July at Knox College about the U.S. budget deficit saying, “Our deficits are falling at the fastest rate in 60 years.” Although this statement has been confirmed true by Politifact, according to CNSNews.com, President Obama has presided over five of the six largest deficits the U.S. government has ever run. So if — according to Mr. Summers — reducing deficits won’t matter to economic growth, why does the president proudly claim that the deficits are falling at the fastest pace since World War II?

Increasing the U.S.’s deficits, adding to the total national debt, would lead to further fiscal instability. Investors would not want to invest in the economy, particularly in the private sector, which stimulates job growth.

The Congressional Budget Office adds that “There is an increased likelihood of a fiscal crisis because investors would lose confidence in the government’s ability to manage its budget, and the government would thus lose the ability to borrow at affordable interest rates.”

It’s therefore important to reduce the deficit in order to ensure an economically healthy environment for generations to come.

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Emily Nelson is an intern at Rare.  Contact her at emily@rare.us and follow her on Twitter @enelsonva

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