An economics lesson on the deficit and debt

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Since taking office, President Barack Obama has overseen annual drops in the budget deficit from 9.8 percent of GDP. He also has overseen steady declines in federal outlays from 24.4 percent of GDP to 20.5 percent this year-the largest four year decline in federal outlays in more than 35 years.

The political stunts around the national debt—the cumulative deficits over the years—have understandably confused many Americans. They hear the national debt is going up and interpret that to mean deficits and federal spending are also growing. Some are so confused, they do not understand that under President Bill Clinton the national debt fell from 47.8 percent of GDP in 1993 to 31.4 percent when he left office in 2001. Republicans in Congress, with President Bush, then pushed budgets from surplus to deficit and increased the national debt. It is disingenuous for the GOP to act as if they were conservative on debt issues.

Because the national debt is the sum of all past deficits, for it to fall, the government once again would have to run surpluses—take in more revenue than it spends. With the labor market still nearly 1 million payroll positions short of January’s 2008 labor demand, it would hurt the economy if the government took money out of the economy by taking in more in taxes than the government put back into the economy by spending.

Some people are convinced that smart economics has to be counterintuitive. They are convinced that lowering government spending that would have hired workers to build roads, teach our children, repair sewer systems and build bridges and levees will free up people, supplies and resources that the private sector would hire and buy in more effective ways. When more than 10.2 million Americans report they are out looking for jobs they can’t find, it does not make sense that the government would be diverting workers from private-sector jobs to get our children’s classrooms back to normal size or repair the many potholes in our roads. In December, there were 2.59 unemployed people looking for work for each job opening. Economics is more like common sense, if we want to get unemployment down, it means we must have more job openings than the private sector is currently producing. And those job openings can only come if the public sector demands more, not less.

During the last quarter of 2013, when the Republican House forced a shutdown of the government over the debt, the fall in government purchases at a rate of 4.9 percent hurt the growth of the economy. The drop in government contracting and buying lowered the growth rate of GDP by nearly one point from what would have been 4.1 percent to 3.2 percent.

Maybe, House Republicans have learned their lesson. The American people thought Republicans were fighting against America’s economy by shutting down the government to make political gains. Hopefully, the American people will use this week’s economic news to see why the debate in Washington must change.

(Follow William Spriggs on Twitter: @WSpriggs.)

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