Political economist Benjamin J. Cohen explains the federal budget deficit and its impact on the domestic economy and more

The numbers associated with the federal government’s budget can seem unreal. The Congressional Budget Office, for example, reports a budget deficit of $984 billion for fiscal year 2019. And the national debt is more than $23 trillion. Consider: A stack of $100 bills worth $1 trillion would be 631 miles high.

Though the figures are mind-boggling, budget deficits — the subject of often heated debate on both sides of the political aisle — have a real impact on domestic programs, the global economy and more, said Benjamin J. Cohen, the Louis G. Lancaster Professor of International Political Economy at UC Santa Barbara.

As he points out, the deficit is simply the result of greater expenditures than revenues.

“In practical terms, this is no different from how all of us as individuals deal with a deficit in our personal budget,” Cohen said. “Every time we use a credit card we are building up debt. If over the course of time our income fails to match the accumulation of debt, we are in deficit. Same for families; same for business enterprises; same for every level of government (cities, counties, states).”

The federal deficit, however, is more complicated than a family’s budget shortfall. Over time, he said, the government’s debt must be “serviced” — paying interest on the accumulated debt. The size of the deficit, he noted, matters because higher interest payments mean less revenue is available to pay for everything else, from national defense to health care.

“It’s like pieces of a pie,” Cohen explained. “The bigger the slice of pie that must go to pay interest, the less pie there will be for other programs. The impact on individual Americans will depend on what programs get cut or canceled. If farm support is cut, farmers are hurt. If food stamps are eliminated or Medicaid benefits are cut, poor people suffer. If defense spending is cut, workers in the defense sector may be laid off. That is what the budget fights in Washington are all about — whose piece of the pie is to be reduced; bluntly, whose ox will be gored.”


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News Date: 

Wednesday, November 13, 2019