Good Deficits: Protecting the Public Interest from Deficit Hysteria

Abstract

President Obama has come under increasingly fierce criticism for the size of the federal budget deficit, as both Democratic and Republican politicians loudly proclaim that federal spending should be cut. This article explains why such anti-deficit fervor is misguided and simplistic, and why, perhaps counter-intuitively, cutting government spending can hurt the country, rather than help it, in both the short run and the long run.

In the short run, cutting deficit spending can be disastrous to the economy, especially if the economy is already in decline. In addition, because the federal budget fails to separate spending that provides long-term benefits to the economy – such as spending on education and infrastructure – from spending that provides no long-term benefits, it is just as politically expedient to cut valuable spending as it is to cut waste: both types of spending cuts reduce “the deficit.” Thus, indiscriminate cuts in government spending will reduce the deficit, but could also harm our long-term prospects.

This article proposes a novel solution to this problem: The creation of an independent agency to fix the current incoherent and damaging budgeting process. The “Growth Budgeting Board” could eliminate indiscriminate and poorly-timed spending cuts, protect valuable investments from the budget ax, and discipline the political process to avoid gamesmanship and abuse.

Keywords: Budget Deficits, Independent Agency, Public Investment