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.

2 comments:

derek 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.

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.