By Daniel DeMarco |Staff Writer|
The U.S. debt is $17 trillion.
CSUSB economic professors believe that the debt is a necessary evil.
“Do I like the high deficits of recent years? No. But I understand why they are necessary for the economy,” said Economic Professor Dr. Thomas Pierce.
This year’s deficit above is estimated at about $650 billion. From 2009-2012, the U.S. yearly deficits were exceeding a trillion dollars.
“In my opinion, and many economists would agree, the government has not acted irresponsibly in it’s spending,” said Dr. Pierce.
Many economists do not think that $650 billion is a small amount of money, but they also stress that it is a significant decrease from years prior and a sign of progress.
The average person has preconceived notions of what debt is, but this does not necessarily translate well when considering debt on a national level.
Economists say it’s a mistake to compare government debt and deficits in the average household as they are two very different systems.
The government more commonly has a deficit rather than a surplus.
The last surpluses ran from 1998-2001, and before that, there had not been a surplus since 1969.
Many economists see deficit spending as an investment with the intention of improving the economy.
The theory behind this is that the economy will get worse and the government has to pick up the slack to get the economy back on its feet, at which time the improved economy will go on to help pay off the investments that the government previously made with taxes.
High employment and high spending is a good thing for the government because it means more taxes, which means more money the government earns, creating a win situation for both the public and the government.
The American Recovery and Reinvestment Act of 2009 is an example of government spending to stimulate the economy that includes a $787 billion package, also known as the Obama Stimulus Package, which economists say helped better the recession of recent years.
If not for the stimulus package, many economists think the recent recession would have gotten worse and lasted much longer.
According to Dr. Pierce, many economists felt a bigger stimulus package, or a second package, would have been even more beneficial for the economy, but the public support was not there.
Professor Mayo Toruño, Chair of the Economics Department, compares the issue of debt and spending to students, “Taking out a loan to finance a college education is not a bad idea, indeed it can be very smart. Yes, there will be the burden of paying it back, but there is also the extra income that’s gained from increasing one’s earning power through a college education.”
Toruño adds, “It’s not just debt that matters, or even debt as a fraction of GDP, it’s the purposes to which the debt is put.”
The method by which the government borrows money is to sell the debt in forms of treasury bonds/notes/bills/etc., which can then be bought by anyone.
The government then reimburses the buyer over a set amount of years with added interest.
Most of the government debt is held domestically, so the money is being put back into the nation as the debts are paid off.
An economy is commonly measured by its GDP, which is all of the product in monetary value which is being produced within the nation that directly benefits the nation.
Since 2009, the U.S. economy has had an average quarterly GDP increase of around 2 percent.
According to Dr. Pierce, a healthy economy needs about a 4 percent quarterly increase in the GDP.
Nonetheless, he adds, the consistent increase shows a healing economy, even if slower than desired.