Fiscal Policies to Reduce Deficit

Fiscal Policies to Reduce Deficit

By: Kayla Vitalbo

            Congress has been going back and forth since 2008 to find ways to reduce the deficit and stimulate the economy again. Economists believe that reducing the deficit is a priority, and doing so would stimulate the economy. Economists report to the New York Times that “Tax increases and especially spending cuts take money from an economy that still needs some stimulus now, and is getting it only through the expansionary monetary policy of the Federal Reserve.” There are still not means of compromise between the two houses, mostly because the Democrats strongly believe that spending cuts and tax increases on targeted classes (such as the wealthy) are the key to fixing the economy, whereas the Republicans believe that spending cuts alone and a classical economic policy of the economy fixing itself rather than the government intervening, is the key to success.

            Boehner and Obama are still trying to compromise between the two houses, but are taking their own measures to get their point across. Obama is travelling to different states to talk to college students about the necessity of research and educational spending, while the House Republicans are trying to force an answer or a compromise out of the Democrats. They are doing so by threatening to allow the Treasury to prioritize debt payments if Congress cannot agree to increase the nation’s debt ceiling, so we can keep borrowing money to pay the creditors. Boehner and Obama need to come to an agreement to put a fiscal policy in place, because only have a monetary policy is not doing enough to stimulate the economy.

            Gregg Daco, an economic advisor, is told by clients that fiscal policy doesn’t really matter and they brush off any ideas about a fiscal policy. Daco tries to get through to his clients to tell them that “it does matter, and it is important in terms of growth. It’s also important in terms of confidence.” Having a stable economy boosts the economies confidence, and we are then able to take more investment risks to further stimulate economic growth. Implementing a fiscal policy in addition to a monetary policy just ensures that we have more options to grow our economy.

            Both parties believe that reducing the deficit is a priority, but both parties want to go about reducing it in different ways which is what they need to compromise on. Our national debt is currently at $16.8 trillion, and is only going to grow if we don’t do anything else to prevent it. The graph below shows the nation’s debt every five years since 1965, and our debt has increased significantly from 65% of our nation’s GDP in 2008, to an astounding 102% in 2013. The recession in 2008 caused a lot of problems, especially with the people not spending as much money which decreased economic growth, and now the people still aren’t as willing to spend, so the government needs to take action and implement some sort of policy. Not only is it important for the Federal Reserve’s monetary policy to be in place, but it is also necessary to implement a fiscal policy that both parties can agree on in order to stimulate and grow our economy.

Works Cited

Calmes, Jackie. "Deficit Reduction Is Seen by Economists as Impeding Recovery - NYTimes.com." The New York Times - Breaking News, World News & Multimedia. N.p., n.d. Web. 9 May 2013. <http://www.nytimes.com/2013/05/09/us/deficit-reduction-is-seen-by-economists-as-impeding-recovery.html?hpw&_r=0>.

"The inconvenient truth about the US national debt | AEIdeas." AEIdeas. N.p., n.d. Web. 9 May 2013. <http://www.aei-ideas.org/2013/01/the-inconvenient-truth-about-the-us-national-debt/>.

"US Total National Debt | The Concord Coalition." The Concord Coalition. N.p., n.d. Web. 9 May 2013. <http://www.concordcoalition.org/us-total-national-debt?gclid=CLOSydfAibcCFZBcMgodZncAnQ>.