Debate Club

Deficits Ensure the U.S. Can Protect Against Threats

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Some people actually believe that severe recessions are good for the long-term health of the economy. They whittle away the less competitive businesses and members of the work force leaving the country with a vital and resilient economic core.

For the rest of us who find that view to be more than a little bit crazy, deficits are important. Deficits allow government to remain stable or even expand during economic downturns, thereby significantly reducing the savagery of those downturns.

Deficits are also important for another reason. They give us greatly increased capacity to deal with serious short-term threats to our wellbeing. World War II was a disaster from the perspective of budget policy. By the time U.S. troops had reached Berlin and Tokyo, our public debt was 8 percent greater than our nation's total annual economic output. On the other hand we brought political stability to Western Europe and Japan, and laid the foundation for the greatest economic boom in the history of the world.

[See a collection of political cartoons on the budget and deficit.]

Further, we were able to reduce that debt from 108 percent of GDP in 1946 to about 25 percent over the following three decades. We actually ran budget deficits about two-thirds of time during those decade but we ended up with strong national balance sheet by the mid-1970s because we generally kept the deficits smaller than the rate of economic growth.

We also invested during that period in a national highway system that became the backbone of the national economy. We sent a large portion of our veterans through college and loaned them the money to buy homes. Federal agriculture research and dissemination boosted agricultural exports by 60 percent in a decade even as the number of farmers dropped by 40 percent. We put a man on the moon during that period and in the process developed the semiconductor which continues to revolutionize computing and communications and most other aspects of the economy.

All in all that was not a bad fiscal policy. It did not bind the government to a rigid formula that would have prevented necessary investments from occurring in all but the best economic years, and it was thoughtful enough to address all of the "deficits" we face as a society: the deficits in education, scienc,; infrastructure and our ability to dissuade foreign aggressors. We don't need a balanced budget nearly as much as we need common sense.

Scott Lilly

About Scott Lilly Senior Fellow at the Center for American Progress

Tags
economy
national security
deficit and national debt

Other Arguments

#1
69 Pts
Deficit Spending Displaces Private Economic Growth

Yes – Deficit Spending Displaces Private Economic Growth

Matthew Mitchell Senior Research Fellow at the Mercatus Center at George Mason University

#2
18 Pts
A Balanced Budget Isn't Necessary, But Entitlement Reform Is

No – A Balanced Budget Isn't Necessary, But Entitlement Reform Is

Stan Veuger Research Fellow at the American Enterprise Institute

#3
9 Pts
A Balanced Budget Should Be the Top Policy Priority

Yes – A Balanced Budget Should Be the Top Policy Priority

Roger Williams Republican Representative From Texas

#5
-23 Pts
Long-term Deficit Reduction Is About More Than a Balanced Budget
#6
-38 Pts
A Balanced Budget Should Take a Backseat to Real Reforms

No – A Balanced Budget Should Take a Backseat to Real Reforms

Isabel Sawhill Senior Fellow in Economic Studies at the Brookings Institution

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