Saturday, March 08, 2003

MACROECONOMICS 101
Or
How Bush is destroying the United States


The Bush administration's out of control military spending coupled with its absurdly massive tax cuts is pushing the federal budget deficit to nearly $2 trillion dollars. A "budget deficit" refers to the yearly difference between money collected by the federal government and the money it spends (not to be confused with the federal debt which refers to the cumulative total of those yearly deficits plus interest).

Why is this bad? Don't lots of individuals and businesses carry debt for years and years in order to buy things they wouldn't ordinarily be able to buy and then eventually pay it off, no worse for the wear?

Yes, but individuals and business aren't as big as the federal government. That is to say, you have to readjust your thinking about the sense of economic scale when considering the federal budget. As the conservatives are continually reminding us, the government is big. Perhaps this puts it into perspective: Douglas Adams's fictional reference book, "The Hitchhiker's Guide to the Galaxy," says of the universe, "Space is big. Really big. You just won't believe how vastly hugely mind-bogglingly big it is. You may think it's a long way down the road to the chemist, but that's just peanuts to space..." So, too, with the federal government and it's collection and spending of money. If I and millions of other individuals are in debt, the overall economy is relatively unaffected (although I could see a scenario where personal debt gets really out of hand...), and one could argue that profits gained by lenders offset the effects of personal debt at the macroeconomic level. But the movement of federal money is so vast that it can easily be viewed as a significant percentage and, therefore, a major influencer of the national economy itself.

That is to say, when federal deficits rise above a certain dollar threshold relative to the Gross Domestic Product (or simply, the economy) bad things happen.

The feds can deal with a lack of money in several ways. They can raise taxes (always unpopular and in the current political climate, not likely). They can just print new money (which causes inflation and makes the economy even worse). Or they can borrow it: this has been the standard solution for funding government operations and programs during deficits for at least a couple of decades, probably longer. But the big problem is that when the feds borrow, they borrow on the enormous scale mentioned above. This essentially squeezes the overall supply of American money. That means much less money for American businesses to stay afloat during lean times or to expand during good times, much less money to finance personal car purchases, home purchases, home improvement, and college educations. The higher the federal budget deficit, the slower the US economy moves.

Simply put, huge federal deficits are a really, really bad idea.

Couple Bush's retarded economics with the effects of war jitters on the price of oil and the overall economy itself, along with the effects of the recent wave of corporate scandals and we have a recipe for a recession the likes of which have not been seen since the 1930s. Bush is this era's Herbert Hoover as Nero: he is playing with his toy soldiers while the nation burns. In fact, he's playing with matches and gasoline as the nation burns.

All of which really burns me up.

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