Most of us know the perils of deficit spending: decreased currency value, leading to higher interest rates, and of course the interest payments could go to something useful. The USA has taken its debt load to a whole new level though.

There is an interesting case to be made for deficit spending during an economic downturn though. The infusion of money into the economy will in theory spur growth during hard times. Business Week considers “traditional recession remedies—interest-rate cuts here, deficit spending there” standard policy.

McCain has been quoted many times stating that he would veto any bill that contained pork barrel spending and is a proponent of extending the 2001 and 2003 tax cuts. Obama has proposed over $850 billion in new spending projects and wants to let the tax cuts expire.

Questions for Debate:
1) Which candidate for President is most likely to balance the budget and restore fiscal health to US?
2) Is it OK for the government to continue deficit spending for the next few years to help get the US out of it’s economic woes?

1) Which candidate for President is most likely to balance the budget and restore fiscal health to US?

I honestly don't know the answer to this question. My guess is it would be whoever can get us out of Bush's Iraq blunder the fastest and put the hundreds of billions we are spending there to better use.

2) Is it OK for the government to continue deficit spending for the next few years to help get the US out of it’s economic woes?

The economy is a complicated mechanism. We don't want to go into recession, but we might need to realize that recent actions of the Federal Reserve Board, Congress and Bush may create a mirage at the end of the tunnel that's really runaway inflation.

My thinking is that recent government actions have been designed to help Wall Street more than individuals.

1) Only candidates that spoke the truth and make good economical sense where R. Paul and Nader.

2) You can not pay credit with credit and expect to get out of debit! Especially when that debit
is more than $9,000,000,000,000.00 (That's just the "Admitted" debit too)

If you keep the REPS&DEMS in power you are responsible for their actions against America !

Questions for Debate:
1) Which candidate for President is most likely to balance the budget and restore fiscal health to US?

I think McCain is most likely, but Obama has a case for himself. McCain and Obama co-sponsored a bill that forced earmarks to be more transparent. They both voted for this recent 1 year moritorium on earmarks. Both have voted for PayGo rules. The difference is that McCain doesn't add earmarks to bills, and Obama does. And kudos to Obama for owning up to wanting to increase taxes to pay for his increased government spending programs.

2) Is it OK for the government to continue deficit spending for the next few years to help get the US out of its economic woes?

No. With looming fiscal disasters in the form of Medicare and Social Security, the financial house cannot afford further borrowing. 5% of our annual GDP has to be invested from foreign countries in the US already to sustain our standard of living. Countries won't continue that forever and when the well runs dry, we're going to be in for a recession that will make this little slowdown seem like the roaring 20's.

McCain has a good track record on financial matters, but I don't agree with his stance on extending the tax cuts, or even his stance on pork.

Bush's tax cuts didn't do so much for those of us in the middle. The big earners did very well, though. Why lower taxes when things were going so well? It wasn't slowing down the economy, and for once, we didn't have to borrow so much just to pay the bills. Logophage had a terrific series of posts explaining how it was nearly impossible for business growth (due to tax cuts) to make up for the lost tax revenue. So the "growth" presumably spurred by the tax cuts really came at the cost of an increased deficit, which McCain always says he is against. Since McCain seems to be a responsible guy, he probably would have lowered spending concurrently with the tax cut, had it been his plan, but what would he have cut? Unless that answer is "defense" (and it isn't), he's not my candidate.

I went over pork in the Reaganomics thread, in the context of the recent stimulus package. My question was, "What's wrong with pork?" And in the context of the deficit-financed stimulus package, the answer is "nothing." Pork is just a better stimulus package with a worse name. Instead of handing out money so people can buy a Chinese TV (or pay down the debt from their previous purchase of a Chinese TV), you hand out money to build a bridge or a library, and the money stays in the country for at least one cycle. And you have a bridge or a library to show for it.

Obama wants to increase spending, probably on education or health care. That's fine with me - more stimulus money, and some good things to show for it. As long as increased taxes pay for it, and not more deficit spending, I think it's a responsible way to handle our money. Do you think that the same money, kept in the hands of Joe Budweiser, would go toward his health and/or education? Or anything nearly as good? Or would he just buy a bigger Chinese TV?

There are certain people I will trust to spend my tax money wisely. Obama and Hillary, yes. McCain, somewhat (that defense thing holds me back here). Bush? No way.

1) Which candidate for President is most likely to balance the budget and restore fiscal health to US?

I'm going to go with McCain. Not because he is a Republican or his economic plan favors debt reduction, but because it is likely that this will result in a divided White House and Congress. I fully realize that the fraternizing between the White House and Congress under joint Republican majorities led to the "feeding at the trough" situation we've had for awhile now. Grid lock is good for deficit control.

2) Is it OK for the government to continue deficit spending for the next few years to help get the US out of it’s economic woes?

Now, here's an interesting question!

The answer here is whether or not the current debt level is unsustainable or even unhealthy. At some point, it does become unhealthy. Where that point lies, however, is hazy.

Compare the US debt and economy to that of Japan. During the 1990s, the Japanese government attempted to spend its way out of a recession. Instead of curing its woes, it compounded them. Keynsian economics failed to cure Japan's economy. Today, it's debt level is the highest in the world, trumping such economic stalwarts as Zimbabwe, Lebanon and Jamaica. Japan is the largest holder of US treasury securities (debt), to the tune of almost $600 billion.

The key indicator that government debt is too high is inflation. We have seen a slight uptick in inflation, but it is low by most standards. The long term average inflation is 3.4%. Inflation in the 2000s has been 2.78% on average per year.

Now, I don't think that debt spending is needed to keep the economy afloat. We can do the same by keeping taxes low.

1) Which candidate for President is most likely to balance the budget and restore fiscal health to US?

I agree with Amlords reasoning that it would gridlock legislation between the two branches and thus decrease sending. On the otherhand McCain will not increase spending to cover the continued WoT and War in Iraq and possible another War in Iran. Wars are expensive and I feel, despite being conservative, he should increase taxes to pay for them. It would be the fiscally responible thing to do then to leave a massive bill for the next generation. Of course on the other side you have Obama who would stop the war and spend a ton of cash on Healthcare. The way I look at it is that if I was going to being taxed even more I would rather spend it on healthcare and get something out of it, then a massive invasion that I feel doesn't make me any safer. Of course my first choice is Ron Paul who would do neither.


2) Is it OK for the government to continue deficit spending for the next few years to help get the US out of it’s economic woes?

In my opinion I think all that the tax cuts and and lowering interest rates did was to delay a falling out of the market from the tech bubble. This lead to people taking out equity from their houses and more spending on credit. Now the bills are do and we will probably end up where we were after the last bubble if not worse. I am also not sure deficit spending would work because the money that it is spent on will eventually make its way out of the US economy. More and More stuff is moving overseas, just recently at the Republican convention I have found out that the new passports are manufactured overseas in Thailand. I think it will prop up the economy for a little while before the money trickles out of our borders. The only way I think we could combat this is with tariffs.

Taxes slow down the economy. Period. See Ireland in the same thread. By cutting the corporate tax to 12.5%, they have expanded their economy to the point that their GDP per person is equal to that of US. Logophage is talking about whether lower taxes actually raise government revenues or not. At some point between 20-50% (my best guess 30%) tax rate, you maximize government revenue from taxes. Every tax after that not only slows the economy, but ALSO decreases government revenue. Logo believes that number to be somewhere closer to 50% than I do and it's tough to prove either one us wrong.


Combat the economic woes or deficit spending? Tariffs today make up 1.1% of total government revenue, so raising them isn't going to balance the budget. If you're talking about the other portion of what drives a healthy economy i.e. the trade deficit (twin deficits being a big problem for us), then tariffs could help. We have to be very careful about which ones though. If you're talking NAFTA, I have to strongly disagree as we need to bind ourselves more closely with our neighbors the same way that the EU did as geographic alliances fall outside of WTO rules. Fortunately, McCain sees this too. If you're talking China or India, then I agree to the degree. Our tariff rates are much lower than theirs today. Some of this is starting to get resolved though. China's pegging of their currency to the US $ was a major issue, but since they moved to a basket of currencies in mid-2005 we have seen the value of the yuan rise 15% vs the dollar. Still has a good 10% to go, but this will help the balance of trade.