The Angry Birds Approach to Understanding Federal Government Spending Constraints
By Doug Bowles / jobsnowkc.org
Aug 13, 2014

Most of us, as citizens responsible for making the choices which set our nation’s policy agenda, are nevertheless at a loss to understand the real constraints we face when it comes to matters of the annual federal budget, deficit spending, and long-term federal debt. This is no surprise when we consider that even professional economists, to whom we must inevitably look for understanding of these matters, harbor long-standing and profound disagreements on these subjects. The competing positions can be neatly summarized with reference to a squabbling flock of angry ‘fiscal’ birds:

  1. Deficit ‘hawks.’ The federal government is just like a business or a household, and it must balance its budget or it will become insolvent (i.e., ‘go broke’). Federal budget deficits are dangerous, even immoral. The long-term federal debt is a burden on future generations. A balanced federal budget is the baseline condition for all other budgetary policy considerations.
  2. Deficit ‘doves.’ Federal budget deficits are cyclical in nature, growing in size during periods of economic recession, and turning to surpluses during periods of economic growth. These surpluses can then be used to pay down excessive long-term debt. Accordingly, we expect to balance the federal budget over the natural economic or ‘business’ cycle, rather than over an arbitrary calendar period. Spending policies that result in deficits during economic downturns are thus necessary and appropriate.
  3. Deficit ‘owls.’ The federal government is nothing like a business or a household, and it cannot become insolvent (or ‘go broke’) with regard to any obligations payable in its own sovereign currency (the U.S. dollar). Federal deficit spending is the norm (just check out the historical record), and its only real constraint is full employment. Deficit spending is not inflationary until the economy has reached full employment. But even at full employment, federal deficits may prove necessary to accommodate stable, non-inflationary economic growth. There is no economic necessity to balance the federal budget over any period. Interest rates are set by the central bank (the Fed), not by financial markets. Long-term U.S. debt is a critical asset for businesses and households, and its growth actually represents an accumulation of wealth in the private sector, not a burden on our children.

Now, these summaries gloss over a lot of contentious issues, and almost certainly will raise a number of serious questions in any thoughtful reader. Partly, this will be because the deficit ‘hawk’ position has been allowed to frame our national economic policy discourse to the point where it is often treated as if it were undisputed economic ‘truth.’ In fact, it is a naïve relic of economic theory originally articulated in the late 19th century, grounded in an obsolete ‘commodity’ paradigm of money.

Doug Bowles

Doug Bowles

For all of the other important policy debates in which we are engaged as a nation (health care, education, full employment, defense, environmental preservation), our choices are critically conditioned by the fiscal policy debate over federal government spending. In that arena, our national policy discourse has been taking place, for the most part, based on unchallenged assumptions implicit in what could accurately be described as ‘flat earth’ economics. We need a healthy national debate based on a full understanding of the relative merits of the positions outlined above. The leaders and gatekeepers of our national discourse owe us at least this much. It’s long past time they got serious about delivering it.

Doug Bowles is Associate Director of the UMKC Center for Economic Information (CEI), and Director of the Social Science Consortium (SSC) program of study in the interdisciplinary Ph.D. program at UMKC, where he is also an adjunct member of the Economics faculty.  He has published work on the subjects of social stratification, interdisciplinary social theory, and urban development.  He has worked as a GIS (Geographic Information Systems) analyst at CEI since January 1995, where he contributes to cutting-edge urban-oriented research.  Currently, his principle area of academic interest and investigation is the intersection of the meta-theoretical constructs of human nature and social ontology.

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The Angry Birds Approach to Understanding Federal Government Spending Constraints