While the United States avoided another economic depression in 2008, we continue to suffer through a Great Recession. The unemployment rate is 9.8% and four million Americans have been unemployed for at least one year. The question facing us is how to get out of this economic downturn. Many Americans believe that deficit reduction is the path to recovery, while others believe more economic stimulus is needed. I’ll examine both views.
The deficit hawks argue that our national debt as a ratio of our gross domestic product is too high. They believe that if the interest that our government is paying to borrow money will, if not checked, sink our country. Therefore, they argue we must cut our spending such as in the areas of Social Security, Medicare, Medicaid, and domestic spending. According to this belief, the reduction in benefits are necessary for our government to reach a balanced budget in a few years. Most deficit hawks do not advocate an increase in taxes.
The stimulus spending advocates argue that deficit reduction is important but that it is wrong approach to follow during this Great Recession. Accordingly, they believe it is necessary for the federal government to incur more debt so that state and local governments will not lay off police, firefighters, and teachers to mention a few groups. More importantly, they argue that federal spending is needed to put back to work the people who are unemployed for at least one year. That work could be to repair bridges, pipelines, schools and many other needed infrastructure areas. If this is not done, this unemployment will become permanent even when our economy recovers. Most economic stimulus advocates argue taxes for those earning more than $ 250,000 should be increased.
I agree with the economic stimulus advocates. Local governments must have balanced budgets; across the nation, local governments laid off 14,000 workers in November, 2010. This is an example of the approach that deficit hawks favor.
This approach will increase the number of unemployed rather than decreasing it. It will result in a decrease in revenue being collected and greater strain on the unemployment compensation fund.
Without economic stimulus, we face an era of economic stagnation and the potential for a permanent unemployed group.
