Debt Doesn’t Matter: Wise Fiscal Policy Does

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In the recently concluded GOP elections the populist vote said no to government spending. Many believe that government spending and its accomplices, debt and deficits are the reasons why the economy is in turmoil (Karabell, 2010, p.1). The Tea Party capitalized on these fears and experienced a decisive victory in the said GOP elections.

Their battle cry can be summed up in the following statement made by a congressional candidate who said, “Federal spending must be drastically reduced … To ignore this issues is a crime against our children and grandchildren” (Karabell, 2010, p.1). However, the author said that this is just popular opinion but in truth extreme austerity measures is detrimental to the U.S. economy.

The author argued that this is a good platform that a candidate can run on, especially those who oppose the current administration. He added that even the Republican Party’s Pledge to America is built around the promise that the party will work hard to end the kind of heavy spending that ran amok when it comes to health care bills and bailouts (Karabell, 2010, p.1).

It is easy to understand why many are afraid of spending. In their own lives they can easily see what it can do. When a person spends there is less money left for other expenditures and worse the heavy spender can be easily in debt.

By arguing against this populist mentality the author had to have a few assumptions. One of the major assumptions is that government spending is needed to boost a stalled economy. The second major assumption is that the debt burden has not dramatically changed in the past twenty years (Karabell, 2010, p.1).

Finally, the third assumption is that what the candidates are proposing is an extreme form of austerity measures that can hurt the economy in the long run. Businessmen must have access to funds because they are the only people who can generate jobs and jumpstart the economy.

The author did not offer any clear evidence or any form of tangible data that would support his first assumption. He based it on the common idea that in order to make money one has to spend money. He did not put it so plainly, he rather said that the key to economic prosperity is investments and the solution is for wise fiscal policy that would enable the government to do just that.

When it comes to the second assumption, the author provided convincing arguments pointing to the fact that “in 2009, net interest payment on the debt decreased from the year before, and the overall percentage the U.s. spends to service its debt (currently less than 3% of GDP) is lower than it was in the late 1980s and most of the 1990s” (Karabell, 2010, p.1). This means that even if the Federal Government is carrying a heavy burden it still has the capacity to pay.

For the third assumption the author used information culled from history books and a closer inspection of the Great Depression of the 1930s was sparked by the growing fear of financial instability and as a result bankers and businessmen became afraid to spend money.

One historian supports this claim saying that when fear gripped the nation, people began to play it safe, and as a result, “The financial machinery of the country began to freeze into rigidity, the industrial and commercial machinery to slow down” (Shcultz, year, p.11). This proves that the author was correct when it comes to his major assumptions.

Conclusion

Debt is indeed not the problem. The most important issue is wise fiscal policy this means that the government has to prove that it has the capability to spend money wisely. The author was against irrational austerity measures. He pointed out that wise spending is the key. He used evidence from history and he used the tools of the economists to show that the government must be allowed to spend money in order to create jobs and to jumpstart a stalled economy.

Works Cited

Karabell, Zachary. “Debt Doesn’t Matter.” Accessed from http://content.time.com/time/magazine/article/0,9171,2028095,00.html

Schultz, Stanley. The Great Depression. WI: Gareth Stevens Publishing, 2006.

Seltzer, Marc. “Are Republicans Lying About Financial Reforms?” Accessed from https://www.care2.com/causes/financial-reform-what-you-need-to-know.html

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Debt Doesn’t Matter: Wise Fiscal Policy Does

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