On Sun, Mar 12, 2017 at 7:48 PM, guchi writer <[email protected]> wrote:

Reducing Federal Government’s Discretionary Powers and Balanced Government Budget

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Reduced Federal Government’s Discretionary Powers

Introduction

The continuing fiscal crisis has renewed the discussion about whether or not government spending is a beneficial countercyclical instrument. The 20th Century saw governments adopting discretionary policies to correct the business cycle. They utilized monetary and fiscal policy to adjust unemployment, inflation, and output constraints. Today, the debate has been politicised and deals majority with the size of government debt, concentrating more on the tax burden the debt represents for future generations (Istook, 2014). The discussion also focuses on whether or not further government debt will assist in the stimulation of the economy. Academically, it is torn between the Keynesian schools of thought and free-market, where each side argues for a policy very distinct from those already in place. Most economists believe the rapid decline in expenditure is the real issue, and suggest the monetary or fiscal stimulus as a solution.

Advocates’ Position

Commonly, critics of government spending eventually fall short of explaining the significant problem. That is why advocates of this particular topic comfortably cite that government spending is naturally inferior to private spending and does not, therefore, function within the coordinated forces of the market (De Rugy, 2004). The ability for one person to obtain the means necessary to accomplish a certain end tends to be influenced by the capabilities of others competing for the same means. It is in a similar fashion that the market reinforces the tendency of efficiently economising the means to the most significant ends. Interestingly, the government does not experience the same limitations and motivations when spending. Advocates of government spending believe that the state can effectively outbid possible rivals for whatever resources are necessary to finish the spending program since it is not limited by revenue constraints (Gordon, 2002). Furthermore, this distorts the whole idea of scarcity because the government can get any economic product at any cost.

Critics often argue that government spending will disrupt economization of resources and instead redistribute these resources towards the achievement of ends considered less significant. However, such argument fails to properly address the issue of countercyclical economic policy during a recessionary period since a surplus of idle resources is present (Sharma, 2011). Idle resources refer to means of production that are being left unused, such as unemployed laborers. Advocates argue that if these means of production are seemingly idle, then there is no harm in the government employing them.

Critics’ position

Government spending redistributes the means of production towards the achievement of ends considered inferior by the people who make up the society that the government is allegedly acting to enhance. People fail to see that the result of government spending is foregone opportunities (Istook, 2014). Moreover, they could easily conclude that the idea of positive countercyclical economic stimulus is highly suspect and that the preferred or better option would be to allow sole market agents to economise fiscal products based on their utility scales. Notably, governments are considered to be large disequilibrating forces of the market. The above means that they forcibly redistribute fiscal products, eliminating them from a process of economization, and investing them toward the realisation of less significant ends (De Rugy, 2004).

The position that I support in this case is the critics’ because government spending tends to constrain and disrupt the economization of resources.

Balanced Government Budget

A balanced government budget is one that equates revenues and expenditures (Gordon, 2002). For the better part of the past, the federal government has functioned under deficit spending. It has largely been unable to balance its budget. Balanced government budgets are currently a debatable issue within politics and academic economics. Presidents have always received the lion’s share of blame for budgetary concerns, but in actuality, it has been the Congress that has been unable to raise funds and/or minimise government spending successfully to stave off persistent deficits.

Advocates’ Position

In the United States of America, every state has a version of a balanced budget amendment which bans some deficits. The federal government, however, does not have such an amendment (Sharma, 2011). Advocates for balancing the government budget argue that such a budget would not only minimise trade deficits and bolster the economy to grow faster over a long period but would also decrease interest rates. This would, in turn, make it easier for individuals and businesses to invest. Additionally, a balanced government budget would increase investment and savings, which would bolster the overall economic robustness (Istook, 2014). Advocates of a balanced government budget cited that it would coerce economic responsibility, similar to how businesses and households are expected to manage theirs. On a short term basis, the interest on the national debt is crowding out the ability to spend finite resources in a more productive manner. People who believe that America urgently needs to gain control of its finances are convinced that a balanced government budget represents a major catalyst toward achieving this. Over the long term, as the national debt is increased, the risk of default and fiscal disaster grows in concert (De Rugy, 2004). Advocates of a balanced government budget cite that bonds and other tools owned by international creditors are a representation of increased vulnerability, both concerning a future debt crisis and politically.

Critics’ Position

It would be interesting to note that President Bill Clinton was openly against a balanced government budget amendment because he believed that it would tie hands politically (Gordon, 2002). America would have little or no room to plan during tough circumstances, such as recessions and wars, which could, in turn, threaten security and lengthen fiscal downturns. The main economic view is that having a balanced government budget annually is undesirable and economic downturns would be unnecessarily painful. Critics further argue that disturbing questions about how to account for trust funds like Social Security and government-guaranteed programs would be raised (Sharma, 2011). A balanced government budget amendment would leave political leaders no choice but to minimise government spending while raising revenues during downturns. The above is the exact opposite of what most economists foresee, something that thrusts the nation deeper and deeper into fiscal disaster. The position that I support in this case is the critics’ because a balanced government budget would represent bad economics and politics.

Conclusion

Some economists believe that government budgets should be balanced over business cycles. By minimising taxes and increasing government spending, governments can reduce the devastating effects of a recession. Once an economy progresses into a growth cycle, governments should also beam their focus and try to run a budget surplus. The above can be done by minimising government spending and increasing taxes. It is quite possible for the government to obtain the benefits of a balanced government budget without necessarily experiencing the risks of making recessions worse due to revenue limitations and government spending.

References

De Rugy, V. (2004). What Does Homeland Security Spending Buy? American Enterprise Institute.

Gordon, N. (2002). Do Federal Grants Boost School Spending? San Diego: University of California.

Istook, E. (2014). Considering a Balanced Budget Amendment: Lessons From History. The Heritage Foundation.

Sharma, P. (2011). “Dangers of a Balanced Budget Amendment.” U.S. News. Retrieved on March 9, 2017 from www.usnews.com/debate-club/does-the-united-states-need-a-balanced-budget-amendment/dangers-of-a-balanced-budget-amendment