[The Hill] With a new Congress set to take office, the most recent projections have the U.S. budget deficit reaching nearly $1 trillion in 2019, or more than double the level of 2015.
The deficit is a perennial topic of discussion for politicians, reporters, pundits and economists, yet many people have difficulty understanding why it’s a problem.
Spending more than we take in sounds irresponsible, but how does the deficit actually impact the life of average Americans? The downside is especially hard to see when deficit spending generates immediate benefits, while the costs occur well into the future.
The recent debt default in Greece, along with the lingering deficit crisis in Italy, has highlighted the danger of excessive public borrowing. Those countries lack their own currency, however, which makes their situation very different from that of the United States.
The fact that our government is able to print money means that outright default is extremely unlikely; rather, the cost of excessive borrowing shows up in more subtle ways.
These costs can, for example, show up in the form of some combination of inflation, tax increases and spending cuts. Given the political difficulty of cutting popular entitlement programs, future tax increases are more likely than spending cuts. This option imposes a burden on the private sector of the economy. |