Roosevelt Institute | Cornell University

The Myth of a Balanced Budget

By David MellyPublished May 1, 2013

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With the passage of the Paul Ryan budget in the House of Representatives last week and its subsequent rejection by the Senate, congressional Republicans continue to demand fiscal austerity and, specifically, entitlement cuts. This logic appears to be based primarily on the idea that the best road to economic recovery is a balanced budget and that the government should not be spending more money than it takes in.
With the passage of the Paul Ryan budget in the House of Representatives last week and its subsequent rejection by the Senate, congressional Republicans continue to demand fiscal austerity and, specifically, entitlement cuts. This logic appears to be based primarily on the idea that the best road to economic recovery is a balanced budget and that the government should not be spending more money than it takes in. The conservative solution to a huge, complicated economic problem is to gut programs they dislike until they get two numbers to match up. The short-sighted nature of this attitude does not take into account the long-lasting negative effects of these cuts to those who rely on government services, and it puts on the back burner what should be the federal government’s first priority: the American people.

The most basic Keynesian economic principles tell us that cutting spending in times of economic woe will only compound the problem. The best thing government can do to initiate or to speed up recovery is to spend more at home, injecting money into the American economy and creating jobs through subsidies or direct investment. Despite continuing skepticism and fierce conservative opposition, the stimulus package of 2009 worked. The money spent on research, clean energy projects, and housing subsidies were responsible for as many as 2.5 million new jobs, 3.8% growth, and 1.2 million people keeping their homes. It was a crowning achievement of the early Obama administration, made possible only by massive deficit spending, which successfully kept the Great Recession from becoming a second Great Depression.

Economic stimulus keeps businesses afloat and citizens employed, reducing the need for further government aid in the way of welfare or bailouts and increasing tax revenue from more people making more money. Cutting government programs puts people out of work and deprives them of the support they need when they inevitably become poor, sick, or old. In return, the government gets a less productive workforce and a smaller economy, which only compounds the problem of insufficient tax revenue. Government spending not only makes economic sense in the short run, but it lays the groundwork for lasting stability and empowers the government both to solve its own fiscal problems and to improve the lives of its citizens, both now and in the future.

So if spending less money isn’t the answer, what is? The success of the stimulus tells us: spending more money in the right places. The government needs to pour money into its citizens and its future, doing what a government is meant to do: helping and organizing people. More public spending is needed in infrastructure projects, especially in clean energy, which has the dual benefit of job creation and technological advancement. Spending money on research, not just through the Defense Department but also in medicine, environmental science, and physical sciences will keep the U.S. on the cutting edge. The government needs to overhaul public education from top to bottom, from pre-school to job training. Federal education spending only accounted for 3% of the federal budget in 2012. Even defense spending, which in some ways is over-inflated and ripe for cuts, still accounts for huge advances in domestic technology.

The Ryan budget balances in ten years, but only at huge cost. The cuts to entitlements like Medicare, food stamps, and unemployment benefits would be crippling to the working class, but the true cost of an austerity-driven budget would be a reversal of all the economic progress made in the past five years. The possibility of a second Great Recession in a decade would be all too real. And beyond the tangible economic effects, the crippling of government’s ability to help its citizens defeats the entire purpose of the institution of a federal government. A government’s primary focus should be the betterment of the country as a whole, both in the short term and long term, and if deficit spending is required to meet that end, then so be it.