How do we close the budget deficit?

By Levi Anthony - Posted 4/25/2011

In part 1, we look at what the deficit is. The big fight in the country now is how to cut the deficit which will be around $1.4 trillion for the current fiscal year. The Republicans and some Democrats believe that the deficit is at dangerous levels and could harm the economy in the long run if not brought under control.

So, how do we reduce the federal budget deficit?

Republicans and conservatives have two solutions – cut spending and cut taxes on corporations and the wealthy. Democrats believe that some spending cuts are needed. In the deal to prevent a government shut down last week, President Obama agreed to cut $39 billion in spending from the current budget. But many Democrats also believe that taxes should be raised on the rich.

Progressives and many economists, such as Paul Krugman, a Nobel Prize winner in economics, believe that it is foolish to cut the deficit at this time when the economy remains in recession and millions of people are unemployed.

The logic is not hard to follow. The economy is not moving because consumers are not demanding goods and services. Consumers cannot create demand because they don’t have the money to buy products. We cannot create demand because over 15 million of us are unemployed and millions more drowning in debt.

Businesses say they cannot expand and employ people because there is no demand for their products. So, the basic problem is the lack of demand for goods and services. For consumers to create demand, they need money in their pockets. And if businesses won’t provide employment, who should? The only force capable of pumping money in the economy large enough to stimulate demand is the government.

So the government should be putting in, not taking out, money from the economy. When the economy is in a recession, the government needs to spend more, not less. That was how Franklin Roosevelt brought the economy out of the Great Depression in the 1930s.

His New Deal program put millions of Americans to work via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on roads and send our children to schools built by the WPA. It was Roosevelt’s policies that provided the foundation on which much of the nation’s post-war economic stability was built.

For this reason it is foolish to cut spending at this time as it could destroy what little signs of life the economy is showing right now. The Republicans demand for more spending cuts could push the economy right back in the hole we have been trying to climb out of since the end of 2008.  




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