Why Budget Deficits Matter

The notion that deficits do not matter is a widely held and deeply ingrained economic philosophy. This line of thought took a stronghold in the 1980s and has seemed to stick to our ever-growing dismay. Yet budget deficits do matter if we are looking at an economic horizon that is longer than one fiscal year. You need to put this into context of your own household. If you as an average American spend more than you make, it will eventually catch up to you. In a more distant past, the American consumer did not have access to debt as they do now. So they in effect had the ability to run localized deficits. Americans took this notion of spending more than you earn to heart. Many bought homes, cars, entertainment systems, and other consumer goods that simply did not jive with their income. This can last for a few years but eventually it will catch up. Now we are seeing the housing bubble burst and bankruptcies soaring. (more)