Policy Market Blog

Bredesen / Blackburn Re the debt / deficit

Martin Kennedy - Thursday, September 13, 2018

Economics, as a discipline, emphasizes 'revealed preference.'  How much chicken people say they will buy at a lower price is as nothing compared to how much they actually buy.  We note then that the demand for fiscal restraint is weak.  If it were strong, if given weight by a significant portion,  not even a majority, of voters, then Congress and the president would supply it, a balanced budget or some measure of restraint.  

It, the demand, is not non-resistant.  That's why candidates persist in releasing plans to reduce the budget deficit.   

Who has the superior plan?  

Any judgment would be subjective in nature.  Competing views re fiscal policy are driven by different views with respect to the role and scope of the state.   Not that it matters in this case on a practical level.  There won't be fiscal restraint unless and until there is a demand for it, until voters reward those who endeavor to reduce the deficit.    

But, some basics...

Is deficit spending ‘sustainable?’  Yes. 

Consider a household with an income of $50,000 and a debt of $20,000.  The debt-to-income ratio: (20 / 50) = 40%.   

Suppose five years later, the income is $100,000 and the debt is $30,000.  The debt is larger, but the debt-to-income ratio fell to... (30 / 100) = 30%. 

Is that what we’re seeing in our country sustainable?  No.


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