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Los Angeles, California, United States
The blog 'Breaking Bread' is for a civil general discussion, like you might have at the dinner table with guests. The posts 'Economics Without the B.S.' are intended for a general audience that wouldn't have to know the difference between a Phillips Curve, a Laffer Curve, or a Cole Hamels Curve. Vic Volpe was formally educated at Penn State and the University of Scranton, with major studies in History, Economics and Finance, and Business; and, is self-educated since by way of books and on-line university courses. His practical education came from sixty years of work experience in the blue-collar trades as well as a white-collar professional career -- a white-collar professional career in production and R&D. In his professional career and as a long-haul trucker, he has traveled throughout the lower forty-eight. From his professional career alone he has visited many manufacturing plants in the United States, Europe and China. He has lived in major metropolitan areas and very small towns in various parts of the United States. He served three years with the U.S. Army as an enlisted man, much of that time in Germany.

Monday, December 31, 2012

Are balanced budgets sacrosanct?

Economics Without The B.S.**:

[**  Double entendre intended.]

Are balanced budgets sacrosanct? 

Are balanced budgets sacrosanct?  If you look at the link, for Truman, Eisenhower, the 60’s, etc. – the answer should be obvious – NO!

http://vicpsu.blogspot.com/2012/12/economics-without-bs.html

We run a trade imbalance – that sucks money out of our economy (right now about $450 to $550 Billion a year).  Our GDP growth is only around $350 Billion a year (approximately 2.1%).  If we had a balanced budget we would lose at least $100 Billion in our overall economy – in other words, it would contract, not expand.  Government deficits (of a couple hundred billion) help the economy to expand; but, it has to be spent in the right places.  Today (and for the past several years) it has not and so we have slow growth.
Balanced budgets are needed when the economy is at full employment and utilizing the full productive capacity of the country.  If we ran deficits at a time like that it would be too much money chasing the same amount of goods and services and we would have inflation.  When we had a mild recession in 2001, the GDP growth we had probably equaled the deficit in the balance of payments that we had that year; and, with the Government surplus in the budget, that was probably enough to contract the economy (when we were perceived to be at or near full employment) and put us in a mild recession.
By the way, Paul Ryan’s budget plan (A Path to Prosperity: A Blueprint for American Renewal) (http://budget.house.gov/uploadedfiles/pathtoprosperity2013.pdf)  does not get us to  a balanced budget until after 2035.
Let’s fix our economy.  That will take care of a lot of the problems we currently have.  And if all who work in the economy, regardless of their station, could share in the productivity of the economy (and I did not say equal share) we would all be better off.  And if the tax code were fairer that would be a big help also.  Everybody (even the poor) should have to pay taxes – their contribution – to support our society, especially if we want a social safety net.
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