Principles of Macroeconomics

Posted: October 17th, 2013

Principles of Macroeconomics

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Principles of Macroeconomics

            The first reason why the government has run a deficit budget for more than eighty years is due to the lack of proper incentives to encourage them spend less. The budget of the US economy is always a deficit one. This means that the government plans to spend more than it can make each year. Spending has a lot of incentives. For instance, when the government spends on a building project, the company that wins the project is very happy and the Congressman for that state is happy since his people will be happy. On the other hand, if the government spends less, jobs will not be created, and citizens will be unhappy with their Congressmen and leadership since there will not be any development (Henderson, 1995).

There has been immense pressure on the government for growth. Growth can only come about with spending. Since the government has to ensure that its image is protected among its people, it collects massive loans that ensure the constant growth of the nation. This results to deficits after deficits that are accrued over the years. Since the Great Depression, US economy has been in crisis. The Great Depression was followed by the Second World War, the Cold War then the recession that is currently being faced. All these factor added to the debt crisis have led to an increased rate of deficit spending over the years.

The Government Debt or the Public Debt started during the Great Depression in the 1930’s and was severely multiplied during World War One. The New Deal programs required major funding and therefore, more funds were invested. From this period, about 80 years ago, the debt has been too large to pay and therefore deficit budgets are run to try and keep up with the development required by the American people (McCarthy, 1981).

References:

Henderson, D. R. (January 01, 1995). THE REAL BUDGET PROBLEM – To truly cut federal spending, Congress must first end the perverse incentives built into the budget process. Fortune, 132, 7, 63.

McCarthy, R. F. (December 07, 1981). The De-Greening of America–The Federal Budget. Community Services Catalyst, 11, 4, 26-27.