PCP: Balanced budge could be harmful for US economy

Kent Vashaw

Kevin Griffin

This article is part of a Point/Counter-point. You can read the point here.

Kent VashawThe United States has a lot of debt – this is indisputable.

But, the apocalyptic tenor of the conversation regarding debt is unwarranted fear mongering which could only have disastrous consequences if acted upon.

Our debt, at its current level, is sustainable for the near future. Alan Blinder, a professor of economics at Princeton University, said that despite our large debt, the U.S. has had absolutely no problems borrowing money in the short-term, and nations are actually willing to let the United States borrow money at “negative real interest rates” – basically paying us to borrow money from them, according to an article in the Atlantic.

There is no evidence that investors will cease lending us money.

Because of our solid history of making debt payments, most countries aren’t too worried about debts, which are put in terms of dollars, losing value. Given that trust in the dollar, it is unlikely that the U.S. will lose its status as the world’s reserve currency.
But, even if we did, it wouldn’t be doomsday.

Plenty of countries whose currencies are not the reserve issue debt in their own euros, yuans, pesos and pounds. Furthermore, losing reserve status would not affect getting our debts paid back in dollars, said economist Brad DeLong in his blog.

While it is helpful that the dollar is the world’s reserve currency, losing that wouldn’t mean that other nations would suddenly cease to find any confidence or value in the dollar, or that we wouldn’t be able to pay off current debts in dollars.

Right now, having a large debt is necessary for our nation. Because we are still barely recovering from a recession, our nation cannot afford the economic penalty that comes with cutting the deficit. Government spending in the form of public-sector jobs stimulates the economy, and cutting it will only make a recession worse.

The business-news publisher Kiplinger reports that the only way to balance the budget completely is with extreme cuts to defense spending, entitlements, jobless benefits and really everything the federal government spends money on. The deficit cannot be cut without pain.

There is plenty of evidence that a balanced budget amendment would have negative effects on the economy by eliminating needed stimulus. A study conducted by the Center on Budget and Policy Priorities found that it would cause the economy to shrink by about 17 percent and double unemployment.

Attempting to cut the deficit down to nothing is misguided and dangerous. Since the debt poses no current problem, there is no reason for immediate austerity measures that would hurt both the economy and individuals.


Vashaw, a sophomore mathematics and creative writing major from Apex, is an opinion writer.