The FY2006 proposed budget includes a $390 billion deficit, not including potential expenditures in Iraq and Afghanistan or any social security reform measures undertaken -- a seemingly huge discrepancy between government revenue and spending (Cashell 2005, p. 1). President Bush has vowed to reduce deficit spending by half in the next five years -- and appears to be holding true to that promise, as the 2006 deficit is smaller than the $427 billion deficit in the FY2005 budget. But again, these numbers are not truly a reflection of the budgetary state of the government when they do not reflect the deficit as a ratio to revenue or as a percentage of total spending. The final section of this paper, then, will examine if the current budget deficit is comparable to previous eras' deficits. What the author found when examining the latest federal budget was that while the aggregate deficit between government programs and government income grew, it remained a steady percentage of GDP (Budget of the U.S. Government, 2004). Other specific numbers given by the federal budget demonstrate that expecting the government to operate on a for-profit basis, like a business, is simply ignoring the primary function of government, which is to distribute federal revenues among the public.

While listing the specific numbers of each government program as a percentage of revenue is limited by space, a few specific examples are an especially demonstration of the functions of government; the long-run budget projections included in the 2004 budget showed a very slim margin between outlays and revenues, reducing the relevance of arguments about the size of the deficit (Budget 2004, p.41). A specific example of this is the amount of federal debt held by the public, which has actually declined in recent years even as the amount of budget deficit has risen (ibid, p. 299). In the 1990s, the amount of federal debt held by the public as a percentage of GDP remained...

299).
Again, these kinds of relationships in the federal budget and in the discussion about the deficit and spending by the government abound; however, to explore every instance of the deficit being a poor indicator of government performance would not only be redundant but is disallowed by space limitations. In conclusion, economists-both professional and casual observers alike-should let the brief examples above speak for the vast majority of current federal budget programs in demonstrating that increased operating deficits do not necessarily mean poorer performance; in fact, the percentage of debt as a portion of GDP is in fact a much better predictor of effectiveness in the federal budget mechanism.

Works Cited

Budget of the United States Government, FY 2004. "Analytical Perspectives," printed by the Government Printing Office

Budget of the United States Government, FY 2006. "Overview of the President's 2006 Budget," Accessed 9/20/05 at http://www.whitehouse.gov/omb/budget/fy2006/overview.html

Cashell, Brian, 2005. "The Economics of the Federal Budget Deficit," Congressional Research Service Report to Congress. Accessed online 9/20/05 at http://www.google.com/search?q=cache:a7pu_QdPGi0J:www.usembassy.it/pdf/other/RL31235.pdf+federal+budget+economics&hl=en&start=3

Cogan, John, 1991. "Federal Budget," in The Concise Encyclopedia of Economics, Library of Economics and Liberty. Accessed online 9/20/05 at http://www.econlib.org/library/Enc/FederalBudget.html.

Kotlikoff, Laurence, 1993. "Federal Deficit," in The Concise Encyclopedia of Economics, Library of Economics and Liberty. Accessed online 9/20/05 at http://www.econlib.org/library/Enc/FederalDeficit.html