The Downside to Government Spending

While federal stimulus funding for turtle tunnels, ant colony research, iPod Touch devices for students, and Blackberry smart phones for smokers might stimulate a few Americans, the rising national debt is bad for everyone.

Jeffrey Miron, Director of Undergraduate Studies at Harvard, explains how this federal spending spree is endangering the U.S. economy.

“The U.S. national debt currently stands at 62 percent of GDP, its highest level since WWII. Under plausible assumptions, this ratio will rise to at least 80 percent and possibly 185 percent of GDP by 2035 and continue increasing thereafter. As the debt-ratio increases, the U.S.’s creditors will demand higher and higher interest rates to continue financing this debt. This means ever larger deficits and ultimately a U.S. default. The U.S. can try to avoid this fate by raising taxes, but that approach faces both political and economic obstacles… If tax increases cannot restore fiscal balance, then the U.S. must slow the path of expenditure to avoid fiscal Armageddon.”

To avoid the U.S. defaulting on loans in the future, the government either needs to drastically increase taxes, which slows economic growth, or drastically cut spending.

A recent Reuters/Ipsos poll shows that Americans want to cut the deficit, not increase spending.

  • 57% of Americans want the U.S. government to cut the deficit to stimulate the economy
  • 39% support deficit spending to stimulate the economy
  • 68% of registered voters think lowering taxes creates jobs
  • 60% think reducing the budget deficit creates jobs
  • 50% believe government spending creates jobs