Macroeconomics Budget Deficits Today Will Tend to Essay

Download this Essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Essay:


Budget deficits today will tend to lower the rate of growth in the economy in the future. Budget deficits result in higher rates of public debt. While the U.S. borrows at very low rates, it nevertheless must pay interest on its debt, and it is that interest that represents a burden on future growth. What happens is that future tax receipts must be used to pay interest and principle on debt created by today's deficits, instead of being invested back into the country in the future. Thus, while running a deficit may create positive economic growth today, it does work to constrain future growth, but placing constraints on the amount of future national income that can be dedicated to growth in the future.

The reasons for the budget deficit definitely matter. As with any spending, there is a difference between spending on things that will build revenue growth for the future and investing in things that will not contribute to such growth (Auerbach & Gale, 2009). For example, investments in education and infrastructure will contribute to future growth, because better infrastructure and smarter people are capable of higher levels of productivity and efficiency. A nation's capital includes all of its resources, so in general any investment on the part of government that either improves the quality of those resources (e.g. education) or the ability of people within the economy to access those resources (e.g. improved transportation infrastructure) is an investment that contributes to future growth. Thus, the investment made today has a payoff in the future. As with any debt, if the debt taken today can be paid off using the proceeds of today's investment, then the debt is going to be worthwhile.

By contrast, spending that does not contribute to future growth -- such as the proverbial $2,000 toilet seat -- is not beneficial to the economy in the long run. In general, any debt that does is not invested in something that will have a payoff greater than the cost of the debt is not worthwhile. Thus, if a government needs to spend money on projects that will have a future payoff greater than the cost of that debt, otherwise the debt is unwise. So it definitely makes a difference what the deficit spending is spent on.

As an example, increased spending on job-training programs should have some positive effect, because it improves the quality of the nation's human resources. What is less certain is whether this investment pays for itself. That would depend on the interest rate on the debt, the quality of the job training and the employability of the people in the program. If the majority of participants can be converted by unemployed people receiving social services to productive taxpayers, chances are that the job-training program will be a good investment of deficit spending.

The defense budget is always a little bit contentious with respect to its merits as an investment. Certainly, there are some good investments. Most defense jobs are for Americans, both in the active military and among military contractors. Many defense jobs are well-paying, due to the amount of engineering work on building military hardware and the emphasis on information systems in modern defense. In creating so many well-paying jobs, the federal government is not only creating such direct employment, but there is also considerable indirect employment created as well, because those well-paying jobs support entire communities' worth of service industries.

In addition, defense spending has led to considerable innovation, which improves the multiplier effect for defense spending significantly. Silicon Valley, which is the global hub of the information age, began with engineers working on defense projects. The Internet, aerospace and other hardware and information systems industries were spawned by federal defense spending. Technologies developed by DoD contractors are repurposed for commercial uses. Even the automobile and steelmaking industries benefitted significantly from World War Two-era defense spending, and emerged from the war as world leaders in their respective fields. While there might be some wasteful spending on defense, and there is definitely some spending on national security interests that is not evaluated on strictly economic terms, it is likely that on balance, defense spending is a net positive for the economy.

Tax policy is one of the more contentious forms of fiscal policy, especially with respect to its benefits. Deficits spending for tax breaks is only useful if those tax…[continue]

Cite This Essay:

"Macroeconomics Budget Deficits Today Will Tend To" (2012, May 24) Retrieved October 26, 2016, from

"Macroeconomics Budget Deficits Today Will Tend To" 24 May 2012. Web.26 October. 2016. <>

"Macroeconomics Budget Deficits Today Will Tend To", 24 May 2012, Accessed.26 October. 2016,

Other Documents Pertaining To This Topic

  • Oil Industry Background and History

    While oil is a valuable resource, Like... The river it is also a curse. Its flow is inconstant. In drought years, the supply of water falls; in other years, floods can take their toll, leaving death and destruction in their wake. It can become polluted, causing both health and economic problems for its users. Davis J.) The above analogy highlights some of the essential features of the modern oil industry and the

  • Economics Finance MBA Level

    Disrupting America's economic system is a fundamental objective of terrorists Even as the world continues to struggle with the terrible shock from the September 11 attacks in New York and Washington, one principle lesson has already become clear: disrupting our economic system is a fundamental objective of terrorists. Prior to September 11, our economic environment was certainly not immune to terror, in comparison to many other nations; we lived relatively terror-free. Now,

  • Balance Scorecard Applications in Healthcare Organizations Balanced...

    Balance Scorecard Applications in Healthcare Organizations Balanced Scorecard The Learning & Growth Perspective The Business Process Perspective The Financial Perspective Strategy Mapping General Perspective of Performance Management Performance Planning Ongoing Performance Feedback Employee Input Performance Evaluation & Review Performance Management in Healthcare Organizations Healthcare Organization as Learning Organization Principles of Performance Management in Healthcare Organizations Performance Measurement & Evaluation Methods Used In Healthcare Organizations Setting Up Performance Management Systems Dimensions and Approaches to Performance Management in Health Care Taken From the British National Health Service Induction Programs Performance Monitoring Personal

  • Macroeconomic Performance Since 1997 United

    Americans receive two to three weeks of paid vacation per year, while Europeans receive between 5 and 7 weeks. In addition, the U.S. has generally 8 paid holidays per year; the comparable figure for Europe is 12 to 18 days (holidays such as Easter and Christmas, plus national days and even the Queen's Birthday in the Netherlands). As a result, Americans average only 10.2 vacation days per year (Zuckerman).

  • Modifications That Were Made to Keynes Approach

    Modifications That Were Made to Keynes' Approach by the Neo-Keynesians and the Implications for the Scope of Fiscal and Monetary Policies The objective of this work is to examine the key modifications that were made to Keynes' Approach by the Neo-Keynesians and the Implications for the Scope of Fiscal and Monetary Policies. Keynesian economics is reported in the work of Chick (1983) to be understood as a certain set of

Read Full Essay
Copyright 2016 . All Rights Reserved