A Nation’s Priorities Are in Its Budget

http://blog.aflcio.org/2007/04/23/a-nations-priorities-are-in-its-budget/

A Nation’s Priorities Are in Its Budget

by Tula Connell, Apr 23, 2007

U.S. Federal Budget Deficit

Balancing the federal budget is not a sexy subject matter. In fact, just the words “federal budget” put off most people because the issues involved are so complex and so, well, dull. But a recent gathering of economists at the nonprofit Economic Policy Institute (EPI) tried to make sense for the rest of us what a balanced budget really means—while agreeing that the nation’s current budget deficit cannot be addressed without a solution to America’s failed health care system.

As part of EPI’s fourth Agenda for Shared Prosperity forum last week, Nobel Laureate economist Joseph Stiglitz gave the keynote address on “Getting Beyond Balanced Budget Mania and Addressing the Nation’s Needs.” Stiglitz was followed by a panel discussion that included Brookings Institute economist Henry Aaron, who spoke on chronic deficits; Children’s Project Director Joan Lombardi, who discussed investing in early childhood development; and EPI economist Max Sawicky, who spoke on why public investment matters. Launched in January, the Agenda for Shared Prosperity is a network of economists and policy makers who will propose and promote ideas to advance a comprehensive and workable economic program to address the nation’s problems.



Stiglitz, a professor at Columbia University and former chief economist at the World Bank, noted that budget debates are a useful way to focus on what a country’s priorities are—and said the nation’s current worries about the $8.8 trillion budget deficit are understandable, “given the absolute mismanagement of the deficit over the past six years.”

The magnitude of the fiscal deficit depends on how you structure your tax policy. So the Bush administration should be blamed for having a very badly designed tax policy that minimized the stimulus per dollar of deficit. It took a lot of work to get a policy that was so badly designed. But they did it. There are lots of other tax policies that could have had equal stimulus with a lot smaller deficit.

In short, Bush’s budget deficit is bad because, in part, it involves a tax policy that does not address the nation’s growing income inequality and does not stimulate the economy. One factor behind the nation’s fiscal deficit is the U.S. trade deficit, now at $58.9 billion, with China recently overtaking the United States in exports. Said Stiglitz:

When the trade deficit goes up, the fiscal deficit responds because the government wants to maintain full employment.

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...expande war in Iran and other areas so the debt will be driven even higher perhaps to $10.5 trillion by the time Bush leaves office with a disastrous deficit already established well in 2009 and beyond