8/03/2004

Is the Deficit something to be scared about.

Today, our economy will go through several deficits and surpluses in each ficial year. Then at the end of the ficial year we can determine as a country weather we had a deficit or a surplus. The interesting fact is that the government is continually paying off and borrowing money all the time, through buying and selling bonds. The government is always paying off its deficit through rolling over our tax money. The only problem is too high of a deficit can effect inflation and the GDP level.

If the government could reduce its spending with the economy still booming, then we would be in favor of surpluses. Some of the ways the government could reduce it spending is by health care costs, Social Security, and even Medicare costs. However, the only problem is we as a nation are getting ready to have one of the largest retirements periods coming up; the baby boomers.

Inflation has been at a very steady rate for a long period of time, there is really only one way for it to go; up. With inflation up and the government spending more money on health care costs for the future baby boomers, our deficit will go even higher than what I believe most people are expecting it to.

8 comments:

Boris said...

I don't think that the deficit we are facing is anything to get too concerned about. It's just like a business cycle. You can't control it, it goes up and down all the time, and you can't predict it. Just look at the current year. The prediction was off by 80 billion dollars!

However, I do agree that we could have some trouble up ahead when the baby boomers are all retired. There are going to be an awful lot of people on social security, and not enough people making deposits. The first thing we need to do is quit selling ourselves bonds. Heck! We're just making the hole deeper.

Kid said...

The baby boomers are getting ready to retire and collect Social Security, but we shouldn’t complain about it. They’ve earned it. Most the people I know that are so called “baby boomers” have worked darn hard. They’ve put in the time and now it is time to collect. If anyone should complain it should be them. They worked hard and paid into it just like you and me.

The reason I say they should complain is because there hasn’t always been Social Security. FDR (Franklyn D. Roosevelt) got the law passed and some people never paid into it. In fact the first person to collect Social Security was a little old lady who never paid a single cent into it. Guess who footed the bill for all those who collected and hardly or never paid…..that’s right it was the baby boomers.

It seems to be a never ending cycle of people paying into the fund for other people to retire. It started somewhere and it will have to end somewhere. It just might be this generation where the buck stops and none of us will collect. But if the buck doesn’t stop then our kids will be paying for us to retire.

Senator Miller said...

Has anyone in the White House thought about getting rid of the SS and making pension plans for people. I don't think it's such a bad idea because the cost of taxes wouldn't fluctuate according the population of retired and the many other beneficiaries of SS. In addition to the incentives to increased working, it would deprive people of the attitude that the "government can just take care of me." If I recall correctly, Chile has instituted such a plan, and has had tremendous success from what I've heard. I can't think of a way to just "switch over" though without a great deal of unfairness and controversy though. Any thoughts on this?

Lizzie said...

The answer to the Social Security issue/ dilemma is any policy that will force the aggregate demand and aggregate supply into equilibrium. Sounds easy enough, however, most of the “solutions” are not very attractive ones. Here are our options: increase taxes on workers to reduce consumption, reduce Social Security payments to reduce consumption by retirees, or increase the retirement age to 72 (yeah right) to increase real production. Like I said, none of them sound like anything we are willing to do, so it seems we will just have to deal with the problems, for now.

C-Dizzle said...

As we learned in class, a deficit isn’t necessarily a bad thing. The government pretty much runs on a constant deficit. I don’t think that the deficit is really a major concern. Sure, we could probably cut and snip a little here and there to make it smaller but we’re o.k. for now.

Ned said...

I think the baby boomers retiring will definately create huge problems. The massive amounts of people who retire at the same time are going to have to start selling stock from their pension/retirement plans. We know that when supply is higher demand, prices are going to plummet. So not only will caring for them be a strain on the deficit, but their stock and bond sales will be a huge strain on the economy. I think we're in for a rough ride 5-10 years from now.

kamm said...

I agree with c-dizzle who says that the deficit really is not really something we need to be constantly concerned about. I'm definatley in favor of cutting welfare costs more than the medicare costs because I think the older people may need more help. There are lots of opportunities ahead for the younger generation if we will just be responsible and learn self reliance.

Being in debt is not necessarily a bad thing if the government is wise with their expenditures. When inflation rises, our debt actually decreases, so inflation isn't always a bad thing either.

Dr. Tufte said...

Spelling mistakes in the post and in Kamm's comments.

Jason's post illustrates pretty reasonable sentiments about the deficit. Even if it isn't too much of a problem, there isn't any sign that the problem is under control.

Kamm's comment makes it clear a sense in which social security is like a family. Once upon a time there was a parent who invented the idea that their kids should take care of them in old age. That parent did not take care of their parents previously, and made out on the deal by creating a tradition that we still have. BTW - the movie "Like Water for Chocolate" has a plot involving a parent putting the burden of their care on one child rather than all of them, and the ensuing problems.

WRT Jack's comment, lots of people in Washington are thinking about getting rid of Social Security, and instituting something like the national pension they have in Chile. I think this approach is misleading. A social security system isn't a pension system - there are pros and cons to each of them. I would be in favor of a national pension system only if we didn't get rid of social security, so that people had access to both.

WRT C-Dizzle's comment, one of the most important features of the deficit is that it is very far from being constant. This is one of the reasons I have no regrets about telling you that it is unimportant. If it was important, it fluctuates so much that we would notice its effects.