September McKinnon

Magnusson
Econ 1010
8/5/2014


The article from Economy Today titled News Flash touched on three main subjects.
The first one is that both presidents George Washington and Bill Clinton believed that the debt
was not supposed to increase so dramatically. The second was about the different ways of debt
reduction and how we may have implimented them. The third is about the economic impact that
the congress inability to reduce debt has had on the economy. I have been given hope that it is
possible for the United States of America to reduce the ammount of deficit to zero, but it would
take a lot of fiscial discipline that our current government does not seem to have.
In 1796 George Washington strongly urged the United States to become, and remain,
debt free in his Farewell address, and by 1835 we had done just that. Bill Clinton also wanted to
become debt free, and having generated a budget surplus for several years running, he figured
that continued fiscal restraint could eliminate the national debt completely in 13 years. If we
had stuck to that plan, we would have been debt free for an entire year already. Government was
unable to stick to it, however, and in fact the ammount of debt we are in has increased
significantly. I am sure there are detailed reasons for us not being able to keep to that plan, some
of which may be very valid, but I also think we could have stuck with it. If we were unable to
stick with it completely, because unforeseen problems arise, then we could have altered it a bit.
There is something called an annual budget process in which congress has the power to
reign in deficit. The United States senate has not passed a budget in four years, and instead
congress sidesteps in fiscal responsibilities by passing Continuing Resolutions that provide
temporary and emergency funding for Uncle Sam. These resolutions make sure government
does not shut down. Both parties do not want government to shut down, but are unwilling to pass
any budget cuts or tax hikes that would help us to decrease the deficit.
There have been several attempts at reducing the deficit recently in the United States.
One way of doing this was by creating a debt ceiling. Congress created mechanisms of budget
enforcement that would compel deficit reduction while providing political cover for the resulting
spending cuts. They created the Gramm-Rudman-Hollings Act of 1985. This was a plan to
reduce the deficit ceiling over a period of 6 years that would bring the deficit to zero. The
government did not do that, instead they created a Spending Cap. It was created to help the
government control the spending thereby increasing economic growth. Unfortunately, however,
those caps were routinely ignored.
Something put in place to help the government follow their own rules for Deficit Ceilings
and Spending caps is called Sequestration. Sequestration means that if the government does not
follow these rules they have outlined, then there will be automatic cuts. It is a political advantage
because no party will be blamed for the cuts, but the downside is that the cuts are from things
like the United States defense. We do not get a choice in where we get to cut the spending
because we are not able to keep the deficit down.
Something else the government has tried to set into place is a Debt Ceiling. This is
designed to put an absolute limit on the ammount the United States can go into debt. We are
constantly reaching the debt and as the debt ceiling is approached, Congress must either raise
the debt ceiling or shut down the government. It always raises the debt ceiling. We decide that
rather than doing something to lower the debt, we must raise the ammount in which we can go
into debt.
The last line of defense we have against debt is a constituional amendment that forbids us
from any more deficit spending. A complete shutdown of anymore deficit spending could be
incredibly bad because it could restrain us too much, and the market ebbs and flows with a need
for flexibility. Thirty-four states can force Congress to call a Constitutional Convention [over
the Balanced Budget Amendments]. 32 states have already passed that provision. The possible
positive affects of the balanced budget amendments is beginning to outweigh the negative
affects.
The near passage of balanced budget amendments is a symptom of the publics
frustration with both soaring debt and Congresss inability to exercise fiscal restraint. Many
people in the United States are getting fed up with the increased deficit. We are loosing faith in
our government and the economy. These perceptions restrain investment spending, deter
consumer purchases, constrain bank lending, and slow foreign investment. The end result is
slower economic growth and persistently high unemployment. The complete inability to reduce
the deficit that the government is causing us to loose faith. The government is constantly arguing
about how to spend the money we have, and is finding different kinds of loopholes to be able to
take out more loans with other countries.
If the president, senate, and congress could come to an understanding, and we, the
people, could put up with the plan to get us out of debt it would be possible to get us to a zero
balance. Unfortunately, we do not trust the governments spending habbits and the government
does not seem to be able to agree. Society wants the government to decrease deficit, but then we
cry bloody murder when there is a proposal to raise taxes. Something I have learned from this
class is that to decrease deficit we need to increase government spending and/or raise taxes.
Because the taxes have not been raised by a significant ammount we have not been able to create
any kind of a surplus. If we could put up with taxes being increased for a while we would be able
to decrease deficit , increase faith in our governments fiscal spending, and create a surplus
efficient enough to eventually put the United States government debt at zero.