# Do we need to balance the budget? **URL:** \ **Category:** Politics & Elections\ **Created:** [October 17, 2012, 2:54am UTC](https://boards.straightdope.com/t/do-we-need-to-balance-the-budget/637960 "2012-10-17T02:54:04Z")\ **Posts on this page:** 6\ **Page:** 3
**Author:** ![adaher](https://avatars.discourse-cdn.com/v4/letter/a/dec6dc/32.png) [@adaher](https://boards.straightdope.com/u/adaher)\ **Post date:** [October 20, 2012, 4:50pm UTC](https://boards.straightdope.com/t/do-we-need-to-balance-the-budget/637960/41 "2012-10-20T16:50:38Z")
Problem is, borrowing rates are low now, but we finance short and medium term. All governments are extremely vulnerable to interest rate rises. The reason I opposed stimulus is because I knew it wouldn’t be paid back. Which means that $800 billion that we borrowed at low interest today will be financed at higher interest rates a few years from now. If we followed correct Keynesian practice and went back to surplus as soon as the economy was back at 5% or lower unemployment, I could get behind stimulus. But doing stimulus and running huge deficits as far as the eye can see is not going to work. Obama’s budget plan has us with a $700 billion deficit in 2021. Now sometime between 2012 and 2021 there will be at least one recession. How do we do stimulus then? ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [October 20, 2012, 6:37pm UTC](https://boards.straightdope.com/t/do-we-need-to-balance-the-budget/637960/42 "2012-10-20T18:37:57Z")
> [@adaher](#): > > If we followed correct Keynesian practice and went back to surplus as soon as the economy was back at 5% or lower unemployment, I could get behind stimulus. But doing stimulus and running huge deficits as far as the eye can see is not going to work. Obama’s budget plan has us with a $700 billion deficit in 2021. Now sometime between 2012 and 2021 there will be at least one recession. How do we do stimulus then? Using hard numbers is misleading at best. It’s certainly possible that the economy will never (meaning for a generation) return to 5% or lower unemployment. It will take that long for a new non-industrial based economy to rid itself of obsoleted workers and create a sustainable base. You can’t put off the economy for that length of time and you can’t simply cut government spending and assume that it will help unemployment. (It makes it worse, obviously, since government workers would be among the unemployed.) It’s also not true that stimulus money is forever lost. I’m sure sure which piece of the larger effort of bailouts, stimulus, and easing you’re referring to as stimulus, but a great deal of what is usually termed the stimulus has indeed been paid back.) Talking about the size of the budget deficit as a dollar amount is also the wrong way to look at it. The proper way is percent of GDP. A $700 billion deficit in 2021 is not ideal but it’s a historically normal percent of GDP and nothing to justify radical measures. And if we were to return to normal procedures, i.e. eliminate the Bush tax cuts as they were intended to be ended, according to the [CBO](http://www.cbo.gov/publication/21999): > [@](#): > > The deficits in CBO’s baseline projections drop markedly over the next few years as a share of output and average 3.1 percent of GDP from 2014 to 2021. All this assumes is that we follow current law. It probably is very conservative since that same article predicted a larger deficit than actually occurred for FY2011. The deficits are a problem but not an overwhelming one or an unfixable one given policy already established. Why we aren’t following that policy is simply a political and ideological issue and not an economic one. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [October 22, 2012, 5:03am UTC](https://boards.straightdope.com/t/do-we-need-to-balance-the-budget/637960/43 "2012-10-22T05:03:51Z")
> [@adaher](#): > > Because a lot of money has to pay interest rather than being put to productive purposes. Granted, some of those interest payments go back into the economy, but a lot of it just pays off foreign creditors or pads rich people’s savings. > > I don’t know what the multiplier is, but paying interest on debt is very likely the least stimulative thing the government does. I don’t know that interest payments are less stimulative than foreign aid but sure, its not as good as food stamps. > [@Little\_Nemo](#): > > There’s another less visible cost to the ongoing debt. It soaks up investment capital. Not these days it isn’t. The low interest rates imply that its not crowding out anything. > [@](#): > > If government borrowing didn’t exist, investors would have to find other places to invest their money and I feel the economy as a whole would benefit. Considering that people were taking negative interest rates from the government for a while, a lot of people would just bury the money. People aren’t looking for returns in an economy like this, they are looking for a safe store of wealth. ---
**Author:** ![gamerunknown](https://avatars.discourse-cdn.com/v4/letter/g/6bbea6/32.png) [@gamerunknown](https://boards.straightdope.com/u/gamerunknown)\ **Post date:** [November 2, 2012, 10:47pm UTC](https://boards.straightdope.com/t/do-we-need-to-balance-the-budget/637960/44 "2012-11-02T22:47:42Z")
> [@ITR\_champion](#): > > Then throw in the fact that Social Security and Medicare are on the path to bankruptcy Social Security is not bankrupt. The payroll tax was insufficient to cover Social Security for the first year in 2011. Taxes are insufficient for other programs, which have to borrow from Social Security’s surplus. Medicare formed 24% of the federal budget in 2011, with defence forming 19%. US expenditure on healthcare is far greater than countries with actual public healthcare and outcomes are lower. > [@](#): > > The current troubles in Europe were caused by enormous deficit spending, mixed with corruption and bad economic policy. Do you have a cite for that? [Transparency International](http://en.wikipedia.org/wiki/Corruption_Perceptions_Index#Rankings)ranks Greece as 80th in perceived corruption, Spain at 34, the US at 24 and Ireland at 19. Greece was 4th on Debt to GDP ratio, Ireland 12th, the US 13th and Spain at 35th. The EU as a whole comes in behind the US in indebtedness. > [@Sitnam](#): > > Hell, it’s not even that different. How many people own their house? > > I’m guessing most people spend most of their lives in net debt. [Here](http://www.youtube.com/watch?v=go2bVGi0ReE)’s a good critique of household debt as a metaphor for other types of debt. ---
**Author:** ![PandaBear77](https://avatars.discourse-cdn.com/v4/letter/p/edb3f5/32.png) [@PandaBear77](https://boards.straightdope.com/u/PandaBear77)\ **Post date:** [November 3, 2012, 11:54pm UTC](https://boards.straightdope.com/t/do-we-need-to-balance-the-budget/637960/45 "2012-11-03T23:54:45Z")
I work for state government (with heavy ties to federal). We can’t hire anyone UNTIL the budget is balanced, and we need new people. So yes, we need one. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [November 4, 2012, 3:56am UTC](https://boards.straightdope.com/t/do-we-need-to-balance-the-budget/637960/46 "2012-11-04T03:56:09Z")
There was once an island, called “Us”. Which was also the name of the people who lived there. Now these people, they had no money. So one day, the village elder said he would create it, and he would call it “dollar”. But the people were concerned. “Sam,” they said (for that was the man’s name) “you can’t just create money out of nothing!” So Sam thought about it, and said, “You’re right. So instead, I will borrow it.” “Borrow it?” The people asked. “What does that mean?” “Here, I’ll show you.” And Sam took from his pocket a piece of paper and wrote “IOU $1” and handed it to his nephew, Fred. Fred then wrote “$1” on another piece of paper and handed it to Sam. “See,” said Sam, “now I have $1. But I didn’t create it, I _borrowed_ it.” The people gathered around, and examined it closely, to make sure it was legit. Sure enough, it had a picture of a dead leader on it and everything. “And look” said Fred, “my dollar is good. It’s backed by a promissory note from Sam. And everybody knows he’s good for it.” And so Sam borrowed a few more dollars from Fred, and paid for them with promissory notes, and used them to hire people to build houses, so the villagers could live indoors. Meanwhile, the dollars began to circulate among the villagers. They used them for all kinds of things. They started businesses, banks, and massage parlors. The economy expanded at a rapid pace. Then one day calamity struck. Somebody noticed that as the economy and the population grew, the number of dollars wasn’t keeping pace. The dollars were becoming more and more valuable. So instead of spending his income, he began to save it. And he wasn’t the only one. Others noticed the same thing, and they began hoarding their dollars too. Soon the economy ground to a halt. Nobody knew what to do. Sam considered borrowing a bunch of dollars from Fred, but decided it would be irresponsible. So he cut back on his spending too. Then a second calamity hit. A tribe from another island attacked, and Us went to war. Now, while it would have been irresponsible for Sam to borrow before, wartime was different, and Sam borrowed like crazy, to pay villagers to make bows and arrows and spears. After several years the war ended. The village warriors returned home, proudly victorious. The people celebrated, but the village scholars were concerned. After all, nothing had really changed - except that Sam had borrowed tons and tons of money. And spent it on bows and arrows that weren’t even useful anymore! He might as well have paid people to dig a hole and fill it up again. The crushing taxes necessary to pay back all those loans would surely destroy the island’s economy. Only that’s not what happened. What happened is that now that people’s pockets were full of money, they began spending again. And the more they spent, the more the economy grew. Soon it grew so much, all that debt Sam had taken on didn’t seem like such a big deal anymore. In fact, he didn’t even bother paying it back! The village scholars decided it was better not to think about, and instead just be happy things worked out. Fast forward many years. Another unforeseen, unforeseeable calamity strikes the island. People are frightened. Businesses are closing down. People are hoarding money. Since dollars not spent = money not earned, every dollar “saved” comes out of someone else’s paycheck. The economy appears to be grinding to a halt again. “There’s an easy solution to all this,” says one man. “Sam should just borrow money from Fred, and spend it, and keep borrowing and spending until everyone who wants a job has one, and the economy is at full employment again.” This man, of course, is an idiot, since that would lead to inflation. So instead, Sam borrows a little bit from Fred, the economy gets a little bit better, and everybody complains about how the economy isn’t getting better fast enough, while also complaining about how much Sam has borrowed. After all, everybody knows borrowing is bad. And it’s not like you can just create money from nothing. [Previous page](https://boards.straightdope.com/t/do-we-need-to-balance-the-budget/637960.md?page=2)