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Budget Myth No. 1

Federal Budget Myth No. 1

Few people actually read and remember federal budgets, which makes it tempting to rely on partisan explanations of why the federal government has not balanced its budget. Since 2001, however, the US has borrowed to pay for routine operating expenses, regardless of shifts in partisan control of the White House and Congress.

While everyone is entitled to their own opinion,  not everyone is entitled to his or her own math or historical facts.  A number of common  myths impede practical budget solutions,  since poorly defined problems are difficult to solve.  In the next two weeks I will identify a few common myths about federal debt and budgets.  Lets begin with the first.

Myth: “The federal government has rarely  balanced its budget.” In fact, the federal government borrowed for only four extraordinary purposes during the nation’s first 180 or so years.  Federal leaders borrowed  to wage wars, plug budget holes during downturns, acquire and link new territory, and prevent states from leaving the Union.  Congress typically paid down debt after each well-understood,  emergency use of debt.   So, for example, Congress retired debt with surpluses after the 4 or the 5 previous spikes in debt, after the the Revolution, War of 1812, Civil War, and World War II.

Appendix A – US Treasury Debt, 1790-2012

 

  • John T. Harvey, Professor of Economics

    I am horrified to see yet another addition to this budget-balancing nonsense. Not only can the US can NEVER be forced to default on any debt denominated in dollars *, but the money owed to China is a function of our trade deficit to them. Even if the US federal government were in surplus, we’d owe just as much as we do now (but perhaps in WalMart stock rather than Treasury Bills). These are not theories, but cold, hard facts. It is bad enough that the Ted Cruz’s of the world are spreading this disinformation, but I am horrified to find a politician for whom my daughters worked during his gubernatorial campaign saying the same thing.

    PLEASE research this more carefully! You analysis is fatally flawed.

    John T. Harvey
    Professor of Economics
    Texas Christian University.

    *See for example this Federal Reserve Bank of St. Louis document:

    http://www.stlouisfed.org/publications/re/articles/?id=2157

    See also:

    http://www.forbes.com/sites/johntharvey/2012/09/10/impossible-to-default/