“Spending financed not by current tax receip

1632 WORDS

“Spending financed not by current tax receipts, but by
borrowing or drawing upon past tax reserves.” , Is it a good idea? Why
does the U.S. run a deficit? Since 1980 the deficit has grown
enormously. Some say its a bad thing, and predict impending doom,
others say it is a safe and stable necessity to maintain a healthy
economy. When the U.S. government came into existence and for about a

150 years thereafter the government managed to keep a balanced budget.

The only times a budget deficit existed during these first 150 years
were in times of war or other catastrophic events. The Government, for
instance, generated deficits during the War of 1812, the recession of

1837, the Civil War, the depression of the 1890s, and World War I.

However, as soon as the war ended the deficit would be eliminated and
the economy which was much larger than the amounted debt would quickly
absorb it. The last time the budget ran a surplus was in 1969 during

Nixon’s presidency. Budget deficits have grown larger and more
frequent in the last half-century. In the 1980s they soared to record
levels. The Government cut income tax rates, greatly increased defense
spending, and didn’t cut domestic spending enough to make up the
difference. Also, the deep recession of the early 1980s reduced
revenues, raising the deficit and forcing the Government to spend much
more on paying interest for the national debt at a time when interest
rates were high. As a result, the national debt grew in size after

1980. It grew from $709 billion to $3.6 trillion in 1990, only one
decade later.

Increase of National Debt Since 1980 Month Amount

12/31/1980 $930,210,000,000.00 *

12/31/1981 $1,028,729,000,000.00 *

12/31/1982 $1,197,073,000,000.00 *

12/31/1983 $1,410,702,000,000.00 *

12/31/1984 $1,662,966,000,000.00 *

12/31/1985 $1,945,941,616,459.88

12/31/1986 $2,214,834,532,586.43

12/31/1987 $2,431,715,264,976.86

12/30/1988 $2,684,391,916,571.41

12/29/1989 $2,952,994,244,624.71

12/31/1990 $3,364,820,230,276.86

12/31/1991 $3,801,698,272,862.02

12/31/1992 $4,177,009,244,468.77

12/31/1993 $4,535,687,054,406.14

12/30/1994 $4,800,149,946,143.75

10/31/1995 $4,985,262,110,021.06

11/30/1995 $4,989,329,926,644.31

12/29/1995 $4,988,664,979,014.54

01/31/1996 $4,987,436,358,165.20

02/29/1996 $5,017,040,703,255.02

03/29/1996 $5,117,786,366,014.56

04/30/1996 $5,102,048,827,234.22

05/31/1996 $5,128,508,504,892.80

06/28/1996 $5,161,075,688,140.93

07/31/1996 $5,188,888,625,925.87

08/30/1996 $5,208,303,439,417.93

09/30/1996 $5,224,810,939,135.73

10/01/1996 $5,234,730,786,626.50

10/02/1996 $5,235,509,457,452.56

10/03/1996 $5,222,192,137,251.62

10/04/1996 $5,222,049,625,819.53
* Rounded to Millions

Federal spending has grown over the years, especially starting in the

1930s in actual dollars and in proportion to the economy (Gross

Domestic Product, or GDP).

Beginning with the "New Deal" in the 1930s, the Federal

Government came to play a much larger role in American life. President

Franklin D. Roosevelt sought to use the full powers of his office to
end the Great Depression. He and Congress greatly expanded Federal
programs. Federal spending, which totaled less than $4 billion in

1931, went up to nearly $7 billion in 1934 and to over $8 billion in

1936. Then, U.S. entry into World War II sent annual Federal spending
soaring to over $91 billion by 1944. Thus began the ever increasing
debt of the United States. What if the debt is not increasing as fast
as we think it is? The dollar amount of the debt may increase but
often times so does the amount of money or GDP to pay for the debt.

This brings up the idea that the deficit could be run without cost.

How could a deficit increase productivity without any cost? The idea
of having a balanced budget is challenged by the ideas of Keynesian

Economics. Keynesian economics is an economic model that predicts in
times of low demand and high unemployment a deficit will not cost
anything. Instead a deficit would allow more people to work,
increasing productivity. A deficit does this because it is invested
into the economy by government. For example if the government spends
deficit money on new highways, trucking will benefit and more jobs
will be produced. When an economic system is in recession all of its
resources are not being used. For example if the government did not
build highways we could not ship goods and there would be less demand
for them. The supply remains low even though we have the ability to
produce more because we cannot ship them. This non-productivity comes
at a cost to the whole economic system. If deficit spending eliminates
non-productivity then its direct monetary cost will be offset if not
surpassed by increased productivity. For example in the 1980’s when
the huge deficits were adding up the actual additions to the public
capital or increased productivity were often as big, or bigger than
the deficit. This means as long as the government spends the money it
gains from a deficit on assets that increase its wealth and
productivity, the debt actually benefits the economy. But, what if the
government spends money on programs that do not increase its assets or
productivity. For instance consider small businesses. If the company
invests money to higher a new salesman then

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