The headline deficit for the 2015-16 fiscal year (the federal government’s fiscal year ends in September) was $ 588 billion, or roughly $ 1.6 billion per day. Sometimes people ask me why this commentary focuses on the federal budget deficit, especially given my contention that the national debt is not the danger it is often hyped to be. To be clear, I have no desire to engage in handwringing over the size of the deficit amid campaign rhetoric about “paying it back” and “living within our means.” We’ve been over this ground before, but suffice it to say that the federal government/Federal Reserve combination is a currency issuer rather than a currency user, and, as such, is not constrained by the rules of ordinary economic entities. My emphasis results mainly because the scale of federal spending dwarfs the actions of any individual economic agent. For example, last month Mark Zuckerberg of Facebook and his wife pledged $ 3 billion to fund an effort to eliminate human infectious diseases by the end of the century. While this is a good chunk of change for even Mark Zuckerberg, it is less than two days of federal budget deficit. (Kind of makes you wonder that if that’s all the money it will take to cure all human infectious diseases, how come we haven’t spent it before?)
In the global economy, the scale of the US deficit is astounding. Last year’s imbalance was greater than the yearly Gross Domestic Product (according to the International Monetary Fund) of Poland, Belgium, or Taiwan. It was three times the value of the gold mined each year at current prices. In fact, dollar value of all of the gold, silver, copper, platinum, palladium, and bitcoin mined annually is less than the federal deficit. Or there’s this:
The United States currently uses about 4150 terawatt hours of electricity annually (a terawatt-hour is equal to a billion kilowatt-hours). The levelized cost of a renewable energy plant—solar or wind—is about $100,000 per kilowatt hour according to the US Energy Information Agency. $588 billion (last year’s deficit) could theoretically buy enough renewable electricity production facilities to replace the entire American supply, and still have $150 billion left over. While this kind of ramp-up in one year is clearly unfeasible, a five-year plan would produce a tremendous benefit to our society at the cost of a few months’ deficit.
My point is not that the deficit is bad or even good; it is merely that the federal government can be an enormously important agent in our economic future, or better or worse. The rate at which Washington releases new money into the system—and for what purpose—matters. If we can spend that money productively, then adding another trillion dollars to a soon-to-be $20 trillion debt really doesn’t matter much. On the other hand, if our national leaders are more concerned with siphoning off money for themselves and their cronies while maintaining the status quo, then we will accomplish nothing from the deficit spending outside of enriching some insiders while we continue with business as usual.
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