Cutting the nation’s enormous budget deficit is one of the few issues in this presidential election year that isn’t provoking rhetorical battles among candidates competing for the nation’s highest office. Although Republicans and Democrats maintain entirely different takes on what should be done about affirmative action, the struggling health care system and the need for welfare reform, both sides seem to have struck a tacit consensus that balancing the budget is a sensible and worthy goal. But assessing whether zeroing out the nation’s bottom line will, in fact, produce the kind of economic panacea many politicians claim is conspicuously absent from the current debate.
Although President Clinton challenged the wisdom of initiating a balanced budget commitment throughout most of last year, neither party today can claim a separate and distinct stand on the issue. Candidates from across the political spectrum are instead trumpeting a popular but irresponsible campaign promise to completely diminish the deficit within seven years. But, an enduring wave of declining wages, corporate downsizing and the push for zero inflation at the Federal Reserve, nevertheless, renders rigid demands to eliminate the deficit dangerous. More sincere discussion about the debilitating effects severe cuts in federal spending will have on large portions of the American public is necessary. Voters must understand what retracting the government’s ability to act as a stabilizing force in the economy will mean for long-term growth and security.
Many conservative economists argue that the federal deficit is primarily responsible for shortfalls in investment over the last several decades. Deficits are financed by borrowing. Consequently, budget hawks contend that competition between the federal government and private investors for loans drives up interest rates and crowds out productive investment in the private sector. Few dispute the logic of such reasoning, but Republican contentions that deficits stifle productivity and thus diminish the economic power of American workers are certainly contestable. Productivity has continued to increase every year since the end of the oil crisis, despite the deficit and the $4 trillion national debt. Adhering to a strict balanced budget plan could sabotage millions of workers who lack the skills to keep up with the demands of a capital-intensive economy.
Unbending policies aimed at eliminating deficit spending could actually undermine corporate growth and increase the expanding gap between the middle-class and working poor. Substantial amounts of government spending are invested in federal projects meant to increase the national median income. Capital borrowing by the federal government is required for implementing policies intended to heat up the economy to run at high levels of employment, create jobs that provide a decent wage, and fund education and job training.
We don’t disagree that legislative efforts must be undertaken to curtail useless social spending and diminish the amount of debt passed on to future generations. Nevertheless, a federal budget that allows borrowing for long-term investment projects and permits deficit spending during recessions and in response to unexpected financial emergencies must be maintained.