The Truth About The Federal Deficit

(The graph above is from the Washington Post's Wonkblog.)

The Republicans, especially those in Congress, continue to lie about the federal deficit. They want Americans to think that they are the party of fiscal responsibility, and that the deficit was under control while they were in charge -- and that it only ballooned out of control after President Obama took office, and has continued to grow under President Obama.

There's only one thing wrong with that argument -- it's about as far from the truth as possible. The real story is the total opposite of what the Republicans are preaching. When President Clinton left office, there was no budget deficit. He left a budget surplus, and the national debt was beginning to be paid down. It was the Republicans (under President Bush) that created the current budget deficit -- by cutting taxes for the rich, and waging to unnecessary wars without creating a way to pay for them (except for massive government borrowing). By the time Bush left office, the Republicans had created a bigger budget deficit than at any time since World War II.

While Republicans don't want to admit it, the budget deficit has been going down since President Obama took office. And that fact shows up another Republican lie -- that the cure for our ailing economy is to reduce the budget deficit. If reducing the deficit is the answer to curing the economy, then why is the economy still barely limping along?

The answer is that we are not cutting the budget deficit the proper way. There are two ways to cut the deficit -- by cutting spending, or by increasing revenues. Cutting spending might work pretty well in a healthy and booming economy, because a healthy economy could absorb the cuts with shrinking. But cutting spending is the wrong way to cure an ailing economy, especially an economy still struggling to recover from a devastating recession. That's because it shrinks the amount of money circulating through the economy, which reduces consumer spending -- and that reduction is consumer spending (demand) suppresses both GDP and job creation. This keeps the economy from healing.

The way to heal a struggling economy is to increase government revenue, and to use a part of that new revenue to increase government spending (while using part to lower the deficit). This increase in spending not only helps hurting Americans recover, but puts more money into the economy -- and that increase in money circulating through the economy stimulates demand and job creation, which increases profits and GDP.

Two summarize, Republicans are not the fiscally-responsible party -- Democrats are (as the administrations of both Clinton and Obama show). The Republicans have shown their fiscal irresponsibility by ballooning the deficit. Second, simply reducing the deficit will not cure a poor economy. It must be done the right way, and accompanied by an increase in government spending.