President Bush’s budget director, Mitchell E. Daniels Jr., has now admitted what most people have been expecting — that the era of federal budget deficits has returned for the foreseeable future. In the current fiscal year, the deficit will most probably be greater than $200 billion and will very likely be more than $300 billion in the next fiscal year. Daniels also forecast that there would be no end to federal budget deficits for the next 10 years.

But Daniels added that there should be little concern about how much the amount of federal spending exceeds the tax revenues taken in by the U.S. government. After all, the deficits will represent “only” about 2-3 percent of a U.S. Gross Domestic Product (GDP) of around $10 trillion. Nor should anyone worry that government borrowing will push up interest rates in the financial markets because, according to Daniels, in an increasingly global market lenders from around the world will easily supply the lendable funds needed to cover these deficits, resulting in a relatively negligible rise in
U.S. interest rates.

The impression that the Bush administration is trying to create is clearly that these deficits will not matter. The planned increases in spending on domestic and defense programs impose no necessary noticeable burden upon the American public. The deficits will be a drop in the bucket in terms of the overall size of the national economy, and they will have minimal impact on the costs of private-sector borrowing for either investment or consumer purchases.

In spite of the administration’s rhetoric and rationales, however,
everything has its cost, and this is as true for budget deficits as for
anything else. More than 150 years ago, the French economist Fr

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