Question

I do not believe it is in our best interest of our economy for Congress and the President to run a balanced budget each year. This is a tough one because it could be good and bad at the same time to have a balanced budget each year. For example, having a balanced budget is good for the economy in general but what if a pandemic such as COVID-19 occurs and we are left with not enough money or services to treat people, such as masks, ventilators, etc. I believe it's crucial to never settle for a balanced budget, ever because you never know what could happen and how much more resources or money the government will need to protect its citizens. I would 100% disagree with this question.

HOW WOULD I REPLY TO THIS?

Answer 1

The statement essentially says that a balanced budget is not the best solution in times of crisis and in other times as well. While the question was that the Balanced budget is the best solution, which the author 100% disagrees with. One should normally disagree that the balanced budget is the best solution as countries with higher GDP have often run a deficit.

Balanced budget is essentially what the government earns which is equal to what the government spends. Thus there is no surplus, neither is there a deficit. But the government of USA has often run a deficit, because its expenditure is always higher than the revenue it earns, this makes up an essential part of the country's GDP. Running a deficit, increases the money supply in the economy as the money in circulation is more. It also acts as a stimulus wherein more capital expenditure acts as a multiplier as there is investment. If the budget deficit is because of higher revenue expenditure, then it is of no use as government is not creating any additional investment in the economy, it is just spending on its activities.

In such situations as a pandemic, government stimulus is the only thing that works as other businesses don't have the resources to spend and earn. Thus running a deficit is beneficial in times of crisis because government expenditure is the sole stimulator in such situations. Additionally even in times of expansion government spending more on capex is incrementally positive for the industry.

Thus running a balanced budget is not the best option to drive up the GDP of a country.