On the Federal Budget

The federal budget represents the revenue and expenditures of the federal government of the United States. It is intended to fund the federal government so that it can fulfill its primary obligation: to protect the rights of American citizens. The budget is not the same thing as the economy, which is the commerce in which the people engage with each other. The budget – it size and whether it is in surplus or deficit – is a factor of how the government is doing, whereas the economy is a factor of how the people are doing. Although the budget and the economy affect each other, they are not the same. The federal budget is less than a quarter of the size of the gross domestic product (GDP), the total value of all goods and services produced.

The budget has occasionally been balanced, but in most years it has been in deficit. The accumulation of annual budget deficits is called the “national debt.” The national debt has existed throughout American history, except briefly during the 1830s, when President Andrew Jackson became the only Chief Executive to retire it. Deficits have been necessary for wars or other emergencies, but the practice of deficit-spending as an economic policy designed to stimulate growth by putting money into the economy was introduced by President Franklin Roosevelt during the Great Depression. There have been relatively few balanced budgets in the modern period.

Liberal economists and politicians criticized Presidents Ronald Reagan and George W. Bush for the massive deficits produced during their administrations, blaming them for all sorts of supposed economic ills, as if the budget is the same as the economy. The liberals completely ignore the economic prosperity of 1982-1990 and 2002-2007, during the Reagan and Bush administrations, respectively, and hope that people forget about the economic growth of those periods. But if liberals were consistent in the belief they have held since Roosevelt that government spending stimulates the economy, then they would credit Reagan’s and Bush’s deficit spending with the prosperity of the 1980s and 2000s. Yet they continue to blame Bush’s deficit-spending for the current economic recession. What liberals are really blaming is not the overspending by those presidents, but the Reagan and Bush tax cuts, even though the tax cuts were primarily responsible for the prosperity enjoyed during their administrations by allowing people to keep more of their own money. This liberal attack on tax cuts is designed to justify tax increases in order to fund more spending -- under the phony guise of opposing deficits.

Presidential candidate Barak Obama criticized Bush’s deficit-spending and promised change. So far, the only change in the budget he is bringing is to rack up even larger deficits that take up an even larger share of the economy. A review of American history suggests that small or temporary deficits apparently are relatively harmless, but large, permanent deficits require the government to borrow huge sums of money and to pay a substantial amount of interest. Thus, whatever short-term stimulus Obama’s deficit-spending would engender, it will be costly in the long term.

Even in the mean-time, deficit-spending takes money out of the economy and only returns it after the bureaucratic middleman takes his cut. The spending appropriated by government distorts the free market not only because it is less efficient than that directed by the people with their own money, but also because government tends to direct taxpayer dollars poorly, that is to say, to projects and programs in which private individuals would not necessarily invest money if given the choice.

In short, Obama’s proposed tax increases to pay for his deficit-spending will have the opposite effect on the economy of a stimulus, while his spending spree will necessitate high taxes well into the future in order to pay off the increased debt.